Adapting to Change. How private employment services facilitate adaptation to change, better labour markets and decent work

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1 Adapting to Change How private employment services facilitate adaptation to change, better labour markets and decent work

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3 Adapting to Change How private employment services facilitate adaptation to change, better labour markets and decent work

4 4 I Adapting to change Contents EXECUTIVE SUMMARY p. 8 INTRODUCTION p. 18 Labour markets are facing fundamental structural changes CHAPTER 1 p. 22 Private employment services enable adaptation to change in increasingly volatile and complex labour markets Reduce time lag between recovery and job creation Help companies to adapt better and faster to economic cycles Offer a wide range of HR services so that companies can focus on their core business Enable more job options and work opportunities for people CHAPTER 2 p. 36 Private employment services reduce both structural and frictional unemployment Ensure a better and faster match between supply & demand and increase transparency of labour markets Create more job options without substituting permanent jobs Contribute to reducing undeclared work Implement active labour market policies & cooperation with public employment services CHAPTER 3 p. 48 Private employment services drive down segmentation of labour markets Facilitate transitions and make them pay Increase labour market participation & diversity, leading to more inclusive labour markets

5 Adapting to change I 5 CHAPTER 4 p. 58 Private employment services help to develop skills and match them with labour market needs Manage skills to deal with sectors seasonal fluctuations Develop skills needed to meet sectoral shifts Increase skills mobility to address demographic changes CHAPTER 5 p. 68 Private employment services deliver decent work A sector committed to social dialogue An industry driving social innovation A sector promoting the need for proper regulation and enhanced quality standards Agency work provides clear advantages over other forms of flexibility Agency workers high level of satisfaction reflects decent working conditions CHAPTER 6 p. 82 Efficient labour markets need relevant regulation of private employment services Regulation of private employment services should balance flexibility with security Private employment services only contribute to better labour markets when properly regulated Labour market efficiency is related to the level of development of private employment services Labour market effectiveness has an important influence on competitiveness CONCLUSIONS AND RECOMMENDATIONS p. 94 Moving forward ANNEXES p. 98 Glossary List of experts interviewed References

6 6 I Adapting to change

7 Adapting to change I 7 Presentation of the Authors THE BOSTON CONSULTING GROUP The Boston Consulting Group (BCG) is a global management consulting firm and the world s leading advisor on business strategy. It partners with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges and transform their businesses. The BCG customised approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organisation. This ensures that clients achieve sustainable competitive advantage, build more capable organisations, and secure lasting results. Founded in 1963, BCG is a private company with 74 offices in 42 countries. For more information, please visit CIETT As the voice for labour choice, Ciett is the authoritative organisation representing the interests of the organised and well regulated private employment agency industry across the world. Recognised as such by international organisations (e.g. EU institutions, International Labour Organisation, OECD, World Bank), Ciett represents the industry at large (bringing together 46 national federations) and its diversity (representing seven of the largest multinational staffing companies as well as tens of thousands of SMEs). Ciett recognises the vital role that private employment services play in helping organisations, economies and individuals facilitate adaptation to change, and their capacity to increase labour market participation, reduce unemployment, build better labour markets and deliver decent work. However, Ciett also recognises that inadequate regulation and a small number of disreputable agencies can prevent the industry from fulfilling its potential. The right environment and level of appropriate regulation, collaborating with policy makers, trade unions and user organisations to improve the governance and quality standards of the industry across the world. Ciett operations are organised across the globe through regional entities. Eurociett represents the private employment services in Europe, Clett&a in South America and Asiaciett in Northern and Southern Asia/Pacific. Through their network of 169, branches and their 741, permanent employees, Ciett members employ 9 million workers (daily full time equivalent) on a yearly basis. They deliver services through the full spectrum of human resources: including temporary agency work, recruitment, interim management, executive search, outplacement and training. Ciett promotes the contribution of millions of agency workers to our economy. Representing reputable private employment agencies, members of Ciett refuse to compete at the expense of workers rights and work hand-in-hand with governments and trade unions to fight illegal work and social dumping. Ciett also aims to promote and increase quality standards within the agency work industry, through Codes of Conduct and other means of self-regulation. For more information, please visit

8 8 I Adapting to change Executive Summary

9 Adapting to change I 9 Private employment services support companies and workers in adapting to seasonal and cyclical changes in the economy. The sector provides innovative and reliable solutions that enable organisations, whether public or private, to manage seasonal fluctuation in demand and adapt their workforce needs accordingly. Cyclical fluctuations, while less predictable, are increasingly a fact of life as economies alternate between periods of positive and negative growth. Private employment services have developed as part of the solution to meet an increased volatility in labour demand and to support organisations in adapting to the impact that each cycle has on their employment levels. However, the increased incidence of structural changes in recent years has brought a new set of challenges to economies and labour markets. Globalisation, demographic evolution, sectoral and IT shifts, unpredictability and complexity combined with new attitudes to work have resulted in economies across the world experiencing deep structural shifts. For labour markets, the consequences are severe: persistent high level of unemployment (which hits young people disproportionately hard), the need for new skills for new jobs, low occupational and geographic work mobility, a risk of segmentation of labour markets, low labour market participation rates (especially for women and older workers) and the need to reconcile diverse forms of labour relations with decent working conditions. As leading service providers, private employment agencies are well placed to enable adaptation to these structural changes. With its international reach and specialised market knowledge, the sector facilitates adaptation to change in labour markets that are becoming increasingly complex, volatile and unpredictable. The Boston Consulting Group/Ciett study finds that the private employment sector stands for a number of characteristics that help labour markets to remain and become more efficient, and making it a valuable employment partner for governments, companies and workers in the decades to come. PRIVATE EMPLOYMENT SERVICES ENABLE ADAPTATION TO CHANGE IN INCREASINGLY VOLATILE AND COMPLEX LABOUR MARKETS Economic cycles are becoming more volatile, resulting in a constant tension between job creation and job destruction. Adapting labour markets to these new dynamics is one of the greatest challenges societies face today. In this new, complex reality of employment markets, the role of labour market intermediaries is crucial. Workers and employers need an intermediary to react immediately to better match supply with demand and ensure that maximum levels of labour market participation are maintained. Standing as a partner in sound economic times, private employment services enable labour markets to adapt when economies are facing changes. The industry reduces time lags between recovery and job creation. It also helps companies to adapt better and faster to economic cycles. The sector provides effective workforce solutions that enable employers to seize opportunities and manage fluctuations effectively. It increasingly offers an array of professional services to deliver work solutions ranging from consulting and recruiting to HR services and outsourcing. Research shows that those organisations which strategically combine internal flexibility with the use of agency work to address fluctuations in demand appear to be best placed to manage increasing volatility and react to market opportunities. For workers, private employment services offer a variety of work contracts that meet the new diversity of expectations and attitudes to work. The sector combines the flexibility that many of today s workers are looking for with the security that they also need. It enables the creation of more work opportunities for people and allows jobseekers to quickly find a job. It also helps people to acquire and develop their skills and competences, contributing to both sideward and upward mobility in the labour market.

10 1 I Adapting to change FACTUAL EVIDENCE When plotted against the overall employment rate, the private employment services industry picks up several months earlier in times of recovery. Private employment services reduce the time-lag between recovery and job creation: There is a one-to-one correlation between the evolution of the number of agency workers assigned and the evolution of GDP. When asked about the main reason they decided to work through private employment agencies, 6% of agency workers in France answered to find a job quickly. The majority of agency workers from the UK (66%), Poland (6%), Netherlands (58%) and Belgium (52%) agree with the statement agency work helps in having a balanced life. PRIVATE EMPLOYMENT SERVICES REDUCE BOTH STRUCTURAL AND FRICTIONAL UNEMPLOYMENT As labour market intermediaries that increase transparency, the private employment services contribute to reducing the two dimensions of unemployment: structural unemployment - by creating new jobs and skills; and frictional unemployment - by ensuring a better and faster match between supply and demand in labour markets. The sector is an engine of job creation and increases the range of job options available. It contributes to matching supply with demand in the workplace and is able to do this on a global scale, addressing the emerging mismatch of talent and demand between geographies and sectors. With labour markets in perpetual motion, jobs are being both created and destroyed on a constant and daily basis. In this dynamic context, active labour market policies with strong cooperation between public and private employment services are needed if economic growth and inclusive labour markets are to be maintained. The ability of private employment services to deliver jobs ahead of the classic job creation curve makes the sector an important partner in managing fluctuations effectively. Private employment services actually start to create jobs even at very low levels of GDP growth and effectively jump-start economies. In addition, by providing an organised and regulated form of flexible work, responsible private employment services contribute to eliminating the most precarious forms of employment: illegal and undeclared work. FACTUAL EVIDENCE Unemployment and agency work rates follow inverse patterns: The higher the agency work penetration rate, the lower the unemployment rate. Private employment services create jobs: In the USA, private employment services provided 41, new jobs in 21, the largest annual growth posted since In Europe, since the low point of the economic crisis in 29, the sector has provided up to mid 211 at least 9, new jobs on top of the 3 million agency workers that have remained employed throughout the downturn. This builds on the performance during the period from 22 to 27 when there were 1.3 million new jobs in the industry. Agency work does not substitute permanent contracts: 74% of user organisations would not consider hiring permanent workers as an alternative to taking on agency workers and 62% of them would not have created jobs if they had no access to private employment services.

11 Adapting to change I 11 Private employment services contribute to reducing undeclared work: There is an inverse correlation between the level of illegal economic activity and the level of agency work penetration. In Italy, agency work was introduced legally by the government in 1998 as a means to fight undeclared work. In Belgium, private employment services play a key role in distributing services cheques turning undeclared domestic cleaning staff into formal workers. In Australia, recognising the efficiency of the private sector, the government has completely outsourced its public employment services to private and non-profit organisations. Compared with the situation before outsourcing, the current system is showing about three times the output performance with approximately one third of the costs. PRIVATE EMPLOYMENT SERVICES DRIVE DOWN SEGMENTATION OF LABOUR MARKETS Segmentation of labour markets can be characterised by a low level of participation and low geographical and occupational mobility. The transition function that private employment services provide is crucial in maintaining inclusive labour markets with high levels of participation. By identifying where employment needs exist and matching them with labour supply, private employment services provide a stepping-stone function that enables people to transition from education to work, from unemployment to employment and from job to job. They also enable people to transition from parttime work to full-time work (and vice-versa) and between sectors in line with economic demand. This role of transition agent is particularly relevant among young and disadvantaged groups (e.g. ethnic minorities, women returning to the labour market, older workers). This is because private employment services provide easy access to the labour market (they assist job seekers in finding the right position), allow employers to recruit these disadvantaged workers with a low risk (probation period) and offer contractual arrangements that meet the constraints of this group of workers (need to gain confidence again by working part-time or for a limited period of time at the outset). By contributing to reducing illegal work and providing work opportunities for people who are furthest away from employment, the PrES industry plays a key role in maximising labour market participation, therefore contributing to a more inclusive society. FACTUAL EVIDENCE An estimated 12 million workers in Europe each year use the services of private employment agencies to enter the labour market, change jobs, upgrade skills or move toward permanent positions. Private employment services provide a stepping stone: In South Africa, just 15% of workers were in jobs before accessing agency work; the figure rises to 61% afterwards. In France, just 11% of workers had jobs before they took up agency work, and this figure jumps to 66% working due to agency work. In Norway, the percentage of people employed jumped from 16% to 65% due to agency work. In Sweden, labour market participation of agency workers rose from 34% to 85%. Private employment services help young people to enter and stay in labour markets: 35% of agency workers in Europe are under 25 years of age. Agency work is often their first opportunity to gain work experience. Target groups benefit from private employment services: 66% of agency workers were unemployed before seeking help from private employment agencies. In addition,

12 12 I Adapting to change older workers (over 5 years) represent an increasing share of agency workers: in France and Belgium, the share of older workers as a percentage of agency workers is increasing at twice the rate of older workers in the wider labour market. Across Europe, agency work is recognised as an effective channel to find a first job (from 92% of population in the UK and 86% in Belgium to 71% in Italy and 59% in Germany) as well as to find a full-time job (from 9% in the UK and 78% in the Netherlands to 43% in Germany and 4% in Italy). PRIVATE EMPLOYMENT SERVICES CONTRIBUTE TO MATCHING AND DEVELOPING THE SKILLS NEEDED IN LABOUR MARKETS Shifting global demographics are creating a significant mismatch of talent around the world with labour shortages growing in the USA, Japan and Europe while the southern hemisphere is facing the prospect of more workers than jobs and often, where jobs are available, workers do not have the skills needed. In addition to dealing with seasonal skills fluctuations, the industry enables the adaptation of skills to structural changes. The activities of private employment services not only reflect sectoral shifts but also help economies to adapt to them. The industry is helping workers to move from declining sectors to in-demand ones. By providing access to vocational training, the sector also helps to plug the talent gap and to develop a higher-skilled workforce. Re-skilling and up-skilling lie at the very core of the sector and are central to its role in meeting demand with supply in employment markets. By acting as an agent for workers, private employment services also help them to access the next assignment and ensure that they can transition easily to further employment. Vocational training for agency workers is demand-driven and organised in close cooperation with user companies with a shortterm and pragmatic approach catering especially well to lower skilled workers. As a result, agency workers can make sideward and upward transitions across sectors and geographies to benefit their career path. FACTUAL EVIDENCE Private employment services adapt skills to sectoral shifts: In the USA, the professional sector (i.e. higher skilled agency workers) today accounts for 55% of the staffing market compared with just 36% back in 1995, reflecting the overall demand for a higher skilled workforce. In France, the percentage of agency workers placed in service industries has risen some 1% in the past ten years, reflecting and accompanying the shift to a more services-oriented economy. Private employment services create skills: In 7 European countries (Belgium, France, Luxembourg, Netherlands, Italy, Spain and Austria), sectoral training funds managed by social partners have been established to facilitate access to vocational training for agency workers. More than 5 million are invested every year by these training funds in schemes specifically designed for agency workers. In the Netherlands, agency workers receive substantially more training than fixed term workers and regularly undergo training to find new job opportunities. Due to the heavy representation of younger people in private employment services, 7% of agency workers undergoing training are younger than 35 whereas only 5% of permanent workers trained fall within this age bracket.

13 Adapting to change I 13 PRIVATE EMPLOYMENT SERVICES DELIVER DECENT WORK The challenge for economies around the world is to marry workforce adaptation to change with the need for decent jobs as laid out in the International Labour Organisation s Decent Work Agenda. The organised and regulated private employment sector provides decent work and offers particular advantages when compared with other forms of external flexible work such as on-call work, fixed term contracts and outsourcing which can be very precarious for workers. Because agency workers are the employees of the private employment agencies (whether temporary or permanent), the sector is in a unique position to negotiate their employment and working conditions. Where relevant, these employment and working conditions are negotiated with trade unions as the agency workers representatives. Therefore, as the only form of flexible work organised as a sector on its own, the industry itself has concluded a large number of collective labour agreements with trade unions at national level, especially in Europe. As a result, agency workers are being protected by rights negotiated through collective bargaining, whether at sectoral or user-company level. As such, the private employment sector is an enabler of social innovation. It has organised new ways to secure social protection for workers under labour relations that are different from permanent contracts. In several countries, the industry has developed schemes to ensure the portability and transferability of the agency workers rights (health insurance, complimentary pension schemes, and vocational training). In Europe, private employment agencies are often viewed as the embodiment of flexicurity due to their combination of flexibility and security for both companies and workers. By promoting the need for proper regulation of the industry and encouraging strengthened quality standards, private employment services are responsible employers working towards the sound and sustainable development of the sector. The industry is strongly committed to work hand-in-hand with governments and trade unions to fight abuses and illegal practices arising from untrustworthy, unethical and rogue private employment agencies as all parties have a common interest in doing so. FACTUAL EVIDENCE The industry is committed to developing constructive social dialogue: In more than 25 countries around the world (18 in Europe, 7 outside Europe), the use of agency work is being regulated by collective labour agreements, whether negotiated at cross-sectoral, sectoral and/or user company level. In 21 the Japanese Staffing Services Association (JASSA) signed a joint declaration with Rengo, the Japanese trade union confederation, on how to improve the treatment of agency workers and promote fair practices within the industry. These collective labour agreements led to the establishment of bipartite funds jointly managed by sectoral social partners in several countries, providing agency workers with extra protection through training (Belgium, France, Luxembourg, Netherlands, Italy, Spain and Austria), health & safety (Belgium, France, Netherlands), pensions (France, Netherlands, Italy, Switzerland) and complementary social benefits (Belgium, France, Netherlands, Italy). The industry works closely with the International Labour Organisation and international trade unions (ITUC, UNI Global) to promote the adoption of appropriate regulation on agency work in countries where such regulation does not yet exist, putting forward the provisions of Convention n 181 on private employment agencies as guidelines.

14 14 I Adapting to change The industry has developed specific tools to ensure that quality standards and regulation (whether by law or collective bargaining) are being enforced: In France (CPPNTT), Belgium (CNT) and the Netherlands (SNCU & SNA), bipartite bodies are in place to monitor and ensure compliance with existing regulation of agency work. In Belgium and Portugal, an Ombudsman has been established to deal with complaints from agency workers and to look for remedies. In Sweden and the Netherlands, where no licensing schemes exist, a certification system is in place to check conditions under which private employment agencies operate. When asked about their working conditions, satisfaction among agency workers is very high. Across Europe, a very large percentage of agency workers would recommend agency work to their family or friends, ranging from 83% in the UK and 76% in Poland to 74% in Belgium, 69% in France, 62% in the Netherlands and 55% in Italy. In France, 91% of agency workers have a positive perception of agency work (more than any other types of public, be they jobseekers, public or private sector workers or students): 93% are happy with their work, 89% with their work-life balance and 79% with their salary. EFFICIENT LABOUR MARKETS NEED APPROPRIATE REGULATION FOR PRIVATE EMPLOYMENT SERVICES In many countries, the private employment services industry already plays a key role in facilitating the adaptation to change, be it seasonal, cyclical or structural. However, in several others, the contribution of the sector to enabling change adaptation is still hampered by inappropriate, unbalanced regulation. In some cases, the industry cannot rely on a clear and stable legal environment due to the lack of legal recognition of this specific triangular employment relationship. In some other cases, the industry still operates in a regulatory framework that was adopted decades ago, at a time when labour markets were substantially different. As a result, private employment services face conditions that are now outdated - such as the limitation of services and labour contracts to be provided, sectoral bans, too limited a number of reasons of use and too limited maximum duration of assignments. In order to assess how to optimise the contribution of the private employment services industry to better functioning labour markets, The Boston Consulting Group and Ciett have devised two indicators: - A Regulatory Efficiency Index based on the regulation of private employment services in place in each national market. - A Labour Market Efficiency Index, based on 6 objective criteria calculated for each country: overall employment rate, employment rate 15-24, employment rate 55-64, annual hours worked, labour participation rate and unemployment rate. EXPLANATORY NOTE To explore what would be the optimal regulatory framework for private employment services in order to deliver better functioning labour markets, The Boston Consulting Group and Ciett have indentified four main types of environment in which private employment services currently operate: 1. Market driven Countries where private employment services and labour laws are relatively liberalised and corporations enjoy a high degree of freedom in determining the most suitable form of employment. Self-regulation also plays an important role in this cluster.

15 Adapting to change I Social dialogue based Countries where private employment services and labour laws are strongly influenced by negotiations between the social partners. In this environment social partners have the freedom to determine rules by negotiation. 3. Legislator driven Countries where private employment services and labour law are mainly determined by government bodies and legislation both at national and regional level, with formal legislation comprising the main basis for labour law. 4. Emerging Countries where private employment services are still young and labour laws and legislation are still being developed. Legislation is evolving with significant informal work in some cases. Three important subgroups were identified within the Social Dialogue based environment creating a total of six types of country cluster in which private employment services operate. When the country clusters are mapped against the Labour Market Efficiency Index, it becomes apparent that labour markets perform differently based on the characteristics of the environment. The market driven and Social dialogue based markets consistently perform better and display greater efficiency than those operating within a legislator driven environment (due to some outdated limitations on services and barriers to entry that the system places on private employment services and the lower capability of social partners to define the appropriate level of regulation). Emerging markets also demonstrate higher levels of inefficiency as their legal frameworks and social systems are still in development and do not enable the private employment services to play a role. Importantly, the report does not seek to recommend one type of cluster over another. Indeed it acknowledges that there is no one size fits all solution and produces strong evidence to suggest that regulation must be relevant to the culture, values and priorities of the market and its society. While the private employment services industry has clearly developed differently in each cluster, it is a fact that when appropriately regulated, the sector is able to increase labour market participation by creating jobs, supporting the reduction of illegal work, attracting disadvantaged people to the labour market and allowing for more work opportunities and job options. FACTUAL EVIDENCE Countries with no specific regulation on agency work, or outdated regulation, rank poorly in terms of Regulatory Efficiency Index (such as Turkey, Argentina, Chile, Greece, Luxembourg, Spain) while more mature markets in which regulation of private employment services has been developed and adjusted regularly to the needs of the labour markets show top scores (e.g. Netherlands, Sweden, USA, Denmark, UK, Australia, Belgium, Germany, France). Countries showing higher scores of labour market efficiency are the ones where the private employment services industry has been able to operate for many years (with the notable exception of France). By contrast, countries in which the sector has been opened only recently (e.g. Chile, Eastern Europe) or is still not appropriately regulated (e.g. Mexico, Luxembourg, Spain, Portugal) score lower. Labour market effectiveness greatly influences countries competitiveness: there is a direct correlation between the scores of the Labour Market Efficiency Index and the World Economic Forum Competitiveness Index.

16 16 I Adapting to change MOVING FORWARD The report underlines that the industry is uniquely placed to support governments, companies and workers to cope with accelerating dynamics in labour markets and manage change, whether seasonal, cyclical or structural. The report makes a number of recommendations for policymakers at international, regional and national level underlining that the private employment services sector can maximise its contribution to sustainable growth and play its role in offering solutions to meet the new economic reality. 1. Policymakers should ensure that the regulatory framework in place for the private employment services sector is appropriate thereby enabling it to play its role fully. a. In countries where no specific regulation exists for the industry, a legal framework should be adopted; this could be achieved by using the ILO Convention n 181 on private employment agencies as a framework. Social partners should be closely associated in the definition of such a regulatory framework b. In countries where specific regulation already exists, policymakers should regularly review the conditions and restrictions that apply to the use of private employment services, to ensure that they are not outdated or no longer justified based on the new reality of the labour market. 2. Policymakers should recognise that the private employment services industry is a sector on its own. As such, it should benefit from the freedom to collective bargaining and, if relevant, be able to negotiate with trade unions on the level of regulation and working conditions of agency workers. 3. Appropriately regulated private employment services should be involved by policymakers in the designing and implementation of active labour market policies - particularly through the development of public-private cooperation. Their contribution to facilitating transitions in the labour market, to increasing labour market participation by creating jobs and reducing undeclared work and to delivering decent work should be included in public employment policies. Private employment services enable labour markets to adapt to change. In order to further enhance its contribution to decent work and better functioning labour markets, the sector also pledges to deliver a number of key actions. 1. The sector commits to work alongside all relevant stakeholders including social partners in order to optimise regulation on private employment services. It will put emphasis on gaining further ratification of the ILO Convention 181 on private employment agencies and/or ensuring that the key provisions of the Convention are being transposed in as many countries as possible around the world. 2. The sector commits to ongoing action to improve the governance and the quality standards of the industry around the world. It will push and support the establishment of national federations of private employment services in countries where none yet exist. It will enhance quality norms and codes of conduct and promote the adoption of complaints and remedies procedures to handle cases of malpractice. 3. It commits to becoming an active career agent for workers and representing more widely the challenges and opportunities of today s workplace and the initiatives needed, including up skilling, social innovation, career guidance and effective transitions in order to ensure decent work for all. To achieve this, the private

17 Adapting to change I 17 employment sector pledges to make further investments in more and better training of its own staff and agency workers. 4. The sector will undertake greater communication efforts to explain the role that the industry plays in contributing to efficient labour markets and to fight against the unethical and illegal side of the industry. In addition to conducting further research and investigations in conjunction with trade unions, the sector pledges to work with them to fight abuses and illegal practices arising from untrustworthy, unethical and rogue private employment agencies as both parties have a common interest in doing so. These unscrupulous agencies damage the image of the well-organised and responsible agencies, represent unfair competition and lead to the unacceptable abuse of workers. 5. The sector commits to expanding its role as a labour market intermediary partnering with all relevant stakeholders to deliver inclusive, well functioning, sustainable labour markets with high levels of participation and a coordinated approach to matching supply with demand.

18 Introduction

19 Adapting to change I 19 Labour markets around the world are facing fundamental structural changes. Increased globalisation means that countries are experiencing significant shifts in their economies characterised by accelerating change, increased volatility, lack of visibility and complexity. Volatility in market capitalisation, in revenue and in operating margins all serve to create an increased feeling of social, economic and financial instability (see Figure 1). As governments and companies seek to navigate this new reality they are looking for a diversified and mobile workforce that will enable them to adapt quickly and build new bases of competitive advantage. At the same time, workers are increasingly interested in new ways of working (combining flexibility and security) and want to manage their work better in order to strike a work/life balance to suit their life stage and priorities. Figure 1 Rise in firm instability clearly visible EXPECTATIONS-BASED FUNDAMENTAL-BASED Market cap volatility Revenue volatility Operating margin volatility 5-year firm mkt cap growth volatility (%) 1 5-year firm revenue growth volatility (%) 2 5-year firm op margin volatility (%) Increase vs % 26 % 5 % 1. Weighted average across all firms, based on market cap 2. Weighted average across all firms, based on revenue Note: Based on all public U.S. companies The joint Boston Consulting Group & Ciett research finds private employment services are uniquely placed to support governments, organisations and workers to manage increased structural changes and cope with the fast-moving dynamics in labour markets. The HR solutions that private employment services provide allow stakeholders to seize the opportunity and leverage the change to their advantage. Private employment services support companies and workers in adapting to seasonal and cyclical changes in the economy. The sector provides innovative solutions that enable organisations, whether public or private, to manage fluctuation in demand and adapt their staffing needs accordingly. Seasonal industries such as the postal service, retail, construction and financial auditing have an established relationship with private employment services which help them to manage their busy working periods by providing additional workers with the appropriate skills.

20 2 I Adapting to change Cyclical fluctuations, while less predictable, are increasingly a fact of life and as economies alternate between periods of positive and negative growth so private employment services have grown in order to meet an increased demand. Most recently, following the global recession, private employment services have witnessed a very rapid recovery in terms of job creation. While many agency workers were the first ones to be impacted by the crisis, they have also benefitted from the recovery (first out- first in model). Since the low point in the economic crisis in 29, the sector has created at least 9, new jobs in Europe, on top of the 3 million agency workers that remained employed during the crisis. Meanwhile in the USA, private employment services created 41, additional jobs in 21. This serves to underline the valuable role that the sector plays in supporting economies and businesses through seasonal and cyclical variations. However, the increased incidence of structural change (globalisation, demographic evolution, sectoral and IT shifts, increased volatility and complexity) in recent years has brought a new set of challenges to labour markets. Economies across the world are experiencing deep structural shifts at sectoral, geographic and demographic levels, leading to the need for new skills and jobs. These new labour market dynamics present governments and policymakers with a core set of new challenges that require them to think and act differently. The challenges can be seen as fivefold: 1. How to deal with increasingly unpredictable and volatile employment markets? 2. How to reduce persistently high levels of unemployment whether structural or frictional which young people, which young people in particular are facing? 3. How to encourage transitions in labour market in order to reduce segmentation and make transitions pay? 4. How to reduce the mismatch between the supply of and demands for skills? 5. How to ensure that new forms of labour contractual arrangements are not detrimental to decent work? In this new reality of work, the role of labour market intermediaries is crucial in order to enable adaptation to demographic evolution, skill shifts and new attitudes to work. For each of these challenges to be tackled, the private employment services industry offers expertise and solutions, which are described in this report.

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22 22 I Adapting to change Chapter 1 Private employment services enable adaptation to change in increasingly volatile and complex labour markets Satisfaction levels in general are very high. All stakeholders are pleased with the employment services system and governments clearly value its efficiency and the positive impact it has on the public budget. Sally Sinclair, CEO of Australian National Employment Services Association

23 Adapting to change I 23 Constant structural changes are leading to increasing instances of job creation and destruction. Adapting labour markets to this new dynamic is one of the greatest challenges that societies face today. As EU Commissioner for Employment, Social Affairs and Inclusion László Andor puts it, labour markets do not work on static patterns, with stocks of the employed, unemployed and inactive. They are more like a machine in perpetual motion. However, there is no invisible hand to shift workers automatically from one job to another, so unemployment and vacancies coexist. 1 In this new reality of employment markets, the role of labour market intermediaries is crucial. Workers and employers need a facilitator to match supply with demand and ensure that maximum levels of labour market participation are maintained. In order to make transitions pay, governments need to embrace active labour market policies with strong cooperation between public and private employment services that will be effective in creating jobs, facilitating transitions, increasing labour market transparency and driving economic growth and prosperity. PRIVATE EMPLOYMENT SERVICES REDUCE THE TIME LAG BETWEEN RECOVERY AND JOB CREATION Cyclical fluctuations are increasingly a fact of life with national economies and indeed with the global economy alternating between periods of positive and negative growth. The impact that these fluctuations have on employment and society presents a significant challenge for governments and companies. As a leading economic indicator, the private employment services industry is one of the first to recognise the onset of a downturn but also the first to perceive the recovery when it comes (first out-first in model in which agency workers might be first to lose their jobs in times of economic crisis but they will be first to get back to work as soon as recovery begins). There is strong cor- Figure 2 Evolution of number of hours worked by agency workers versus EU 27 GDP growth rate (year on year) 3% 6% 2% 4% 1% % 2.3% 3.45% 1.7% -.3% -3.5% % -23.8% -27.7% % -14.1%.6%.84% 2.% 16.25% 2.2% 19.73% 2.2% 22.71% 2.5% 23.71% 2% % -1% -.7% -2% -1.7% -2% -5.% -4.9% -3% Q1 8 Q2 8 Q3 8 Q4 8 Q1 9 Q2 9 Growth rate of GDP volume Source: Eurostat, Agency business Indicator, CIETT, Federations -2.1% -4.3% Q3 9 Q4 9 Q1 1 Q2 1 Q3 1 Q4 1 Change in hours worked (European average) Q1 11-4% -6% 1 Opening Speech of the Conference on the Future of European Labour Markets, Brussels: 211, SPEECH/11/167

24 24 I Adapting to change relation between the evolution of number of agency workers assigned and the evolution of GDP in a given quarter (see Figure 2), while it usually takes 3 to 9 months for the overall employment rate to adapt to the economic fluctuations. It is the industry s ability to respond quickly to changes in GDP growth that sets it apart and makes it such a vital component in economic growth. Recovery of GDP and agency work are mainly recorded in the same quarter, with OECD figures on GDP growth showing an almost simultaneous correlation with growth in the agency work market in 29 and 21. This can be attributed to organisations experiencing growth looking to private employment services to provide them with the manpower to order to meet increased demand (Figure 3). There is an inevitable time-lag between economic recovery and a decrease in unemployment levels. Thanks to their capacity to react quickly and their knowledge of where skills are available, private employment services are ideally placed to plug this gap and provide workers with jobs and companies with the manpower they need to take advantage of an economic upswing. Figure 3 Agency work quickly responds to changes in GDP growth Recovery of GDP and agency work happens mostly in the same quarter Belgium France Germany (%) (%) J F M A M J J A S O N D J F M A M J J A S O N D (%) (%) J F M A M J J A S O N D J F M A M J J A S O N D (%) (%) 5-5 J F M A M J J A S O N D J F M A M J J A S O N D (%) 4 Italy 1 (%) 1 (%) 6 Spain J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D (%) GDP year-on-year growth (quarterly) Agency workers (FTE) year-on-year growth GDP recovery Agency work recovery Agency work is following economic cycles, but with a much wider amplitude compared to GDP No monthly Aworker figures available before 21 Source: OECD, Ciett At the onset of the financial crisis in 28, the sector saw its global employment numbers fall by one million. However, thanks to its ability to respond swiftly to the return of growth, by 29 the majority of European countries experienced increases in demand with agency work penetration rates back to their 26 levels as user companies responded to an upturn in business and reinforced their workforce. In countries such as Germany, Sweden and Italy, the number of workers placed by private employment services have already returned to their pre-crisis level highs (see Figure 4).

25 213 Adapting to change I 25 Figure 4 The job creation engine of agency work is taking off again UK France Germany 1,5 1, 1,36 1,111 1,175 1,219 1,265 1,378 1,22 1,68 1, Agency workers (FTE, ') Agency workers (FTE, ') Agency workers (FTE, ') Netherlands Italy Spain Agency workers (FTE, ') Agency workers (FTE, ') Agency workers (FTE, ') Note: Agency worker figures measured in daily average numbers [in full-time equivalents] Data estimated for UK, Belgium, Spain (Ciett corporate member estimates) 2. Ciett estimate Source: Ciett national reports, Ciett corporate member estimates As an engine of job creation, private employment services are particularly effective in speeding this process during periods of economic recovery because they literally draw jobs out of the market. The agency work level of activity is one of the first things to experience growth as economies tentatively recover and new jobs begin to be created in response to increased demand. Plotted against the overall employment rate, the private employment services industry picks up earlier in times of recovery than the rest of the labour market (with a time gap of between 3 to 9 months) See Figure 5. Figure 5 Agency work provides needed flexibility to accelerate recovery Agency work levels are picking up earlier than total employment levels France Germany Netherlands (% ) (%) (% ) 5 MONTHS 3 MONTHS Norway MONTHS 4 > 3 MONTHS Poland MONTHS 4 > 9 MONTHS J F M A M J J A S O N D J F M A M J J A S O N D Spain J F M A M J J A S O N D J F M A M J J A S O N D NA (%) Months between recovery of AW vs. employment Total employment year-on-year growth (quarterly) Agency workers (FTE) year-on-year growth 1. Data only available until August 21 Source: Ciett national federations, Eurostat, BCG analysis

26 26 I Adapting to change PRIVATE EMPLOYMENT SERVICES HELP COMPANIES TO ADAPT BETTER AND FASTER TO ECONOMIC CYCLES Private employment services mitigate the impact of economic crisis in labour markets and those companies using agency work can be seen to accelerate faster out of the downturn. An IW Consult study 2 carried out in Germany and covering the period demonstrates how those organisations using agency work recorded revenue growth a full 5% higher than those who did not (Figure 6). The study demonstrates that the ability to react to increasing demand quickly results in higher revenue growth and a better financial performance. Figure 6 Companies using agency work accelerate faster out of downturn German study shows higher revenue growth for agency work user organizations compared to other firms Revenue growth (%) for different splits 2 Using AW Not using AW 11% 11% 7% 6% 13% 1% 1% 5% 7% 5% 15% 8% 8% 5% 16% 1% 13% 6% 11% 6% Small (< 5 employees) Medium and large (> 5 employees) Industry Service 1 No export activities With export activities No R&D spendings < 5% of revenue > 5% of revenue TOTAL Company size Sector Export activity R&D expenditures Ability to react to increasing demand quickly results in higher revenue growth and thus better results 1. Including construction and other sectors Source: IW Consult GmbH study "Zeitarbeit in Deutschland" IW Consult GmbH study Zeitarbeit in Deutschland Flexibility profiles of European companies, European Company Survey 29, Eurofound 4 Staffing survey: Temporary attractions are peaking by Morgan Stanley March 211 This outcome is confirmed by research recently undertaken by Eurofound, the European Foundation for the improvement of living and working conditions, which clustered companies into five different groups according to their flexibility profiles 3. Evidence suggests that companies using a combination of flexible working hours, overtime, performance related pay schemes and agency work are the ones experiencing the strongest financial results, highest labour productivity and greatest choice of staff and employee motivation. Morgan Stanley Research 4 comprising interviews with 2 HR managers in Europe and the USA confirms the value of private employment services in providing adaptation to change for companies. 76% of respondents cited the ability to respond quickly to business demands when asked why they chose agency work and 65% referenced a desire for greater flexibility (Figure 7).

27 Adapting to change I 27 Figure 7 Main reason to use agency work is to respond quicker to business demands MAIN REASONS TO MAKE GREATER USE OF AGENCY WORK Can respond quicker to business demands 76% Desire for greater flexibility 65% Can try out potential permanent hire 52% Desire to keep fixed cost low 35% Uncertainty over payroll taxes 9% Uncertainty over medical costs 4% Other 4% (%) Besides the overarching topic of flexibility companies also use agency work to hire permanent staff (extended trial period) Source: Morgan Stanley Research (interviews with 2 HR managers in the US and Europe) Absorbing activity fluctuations (whether seasonal or cyclical) is the main reason mentioned by 76% of companies in the Netherlands, Germany, Switzerland and Sweden when asked why they use the services of private employment agencies. Half of these companies also use agency work to replace absent permanent staff, allowing them to cope with unpredictable sickness or vacancies (Figure 8). Figure 8 Key lever in addressing volatility in high-performing countries CRITICAL TO MANAGING SEASONALITY AND ECONOMIC CYCLICALITY... AS WELL AS ALLOWING FLEXIBILITY FOR WORKERS WHO NEED IT, I.E. SICK OR MATERNITY LEAVE Share of companies using AW to absorb activity fluctuations (%, 29) % of companies are using agency work to deal with fluctuations e.g. in demand 49 Ø 76 Share of companies using AW to replace absent permanent staff (%, 29) Half of companies temporarily replace absent permanent staff with the help of agency work 35 Ø Netherlands Germany Switzerland Sweden Netherlands Sweden Germany Switzerland Source: Ciett national reports

28 28 I Adapting to change CASE STUDY 1: RESPONDING TO IMMEDIATE LABOUR MARKET NEEDS IN THE AFTERMATH OF NATURAL DISASTER Following the earthquake and tsunami in Tōhoku, Japan on 11 March 211, the Fukashima Nuclear power plant suffered a number of failures. Resulting from this, a private employment agency was contacted by the power plant operators to provide 18 temporary agency workers. These agency workers were placed in call centres in order to respond to compensation claims for loss of use of property and other issues related to the nuclear power plant failure. This is an example of private employment services ability to respond to immediate labour market needs, even for large numbers of workers. This ability to meet unexpected demand for labour highlights the crucial role private employment services can play in responding to crisis situations. PRIVATE EMPLOYMENT SERVICES OFFER A WIDE RANGE OF HR SERVICES SO THAT COMPANIES CAN FOCUS ON THEIR CORE BUSINESS A more complex and unpredictable environment leads companies to increasingly focus on their core business and to outsource some of their activities. To cover such activities, the private employment sector is diversifying its services and extending its role as a partner in employment markets beyond temporary agency work. The spectrum of HR services being offered by private employment agencies today extends to permanent recruitment and consulting services to outsourcing, outplacement and payrolling (see Figure 9). User companies also avail themselves of additional services from private employment services in order to increase the efficiency of their internal HR functions. Figure 9a Professional services offered provide added value to client (1/2) DESCRIPTION SERVICES OFFERED VALUE-ADD FOR CLIENT CONSULTING SERVICES Provide specialized consulting services to employers covering a range of HR topics Project management HR processes consulting Compliance and policy Leverage extensive PrES experience in HR services Insight into new markets and/or segments Comply with legislation and avoid violations HR OUTSOURCING Provide full HR administrative services to enhance or replace internal capabilities Administration and payroll Compliance Workforce management Free up the time of client HR managers, enabling them to concentrate on their company s essential strategic HR issues Streamline and simplify client's supplier relationships RECRUITING Offer full recruitment capabilities to enhance or replace internal capabilities Full and part-time recruiting Recruiting administration (i.e. background checks) Leverage deep expertise in finding and retaining right workers Assurance of high quality candidates Free up HR capacity by handling a non-core capability

29 Adapting to change I 29 Figure 9b Professional services offered provide added value to client (2/2) DESCRIPTION SERVICES OFFERED VALUE-ADD FOR CLIENT OUTPLACEMENT Provide employment transition services to employees re-entering the job market Career transition consulting Post job-loss training Career management Put in professionals hands a career step that can be psychologically difficult Give client's people the right opportunities at the right time Well managed outplacement has a positive impact on client's reputation and public image PERMANENT PLACEMENT Recruitment services for permanent job openings Search and recruit Generalists Professionals specialists Skills, capabilities and fit assessments Hiring process management Extend client's reach to talent pool Reach specialists otherwise unreachable Decrease a time and ressource consuming activity Ensure to make the right selection thanks to PrES screening and selection experience In the USA, search and select services are the fastest growth area for the industry and now represent one quarter of all revenue (Figure 1). Figure 1 Search and select services growing faster than agency work US pre-crisis data GROWTH OF PRES SERVICES ( ) ESTIMATED REVENUE 1 Index (1 in 1995) USD B, Search and select Temporary Outplacement Outplacement Search & select services Temporary 1. Expressed in revenues agency work includes billing of salaries of workers, place & search and outplacement only include fees Source: Staffing Industry Analysts

30 3 I Adapting to change The sector has the expertise to provide made-to-measure solutions to companies staffing needs and to work with them in managing complex workforce planning and risks. They can deliver solutions across all forms of contracts and provide tailor-made solutions that allow organisations to explore growth and new ventures while still protecting the core activities of the company. CASE STUDY 2: BULGARIA A German discount retailer planning to simultaneously open 15 outlets in Bulgaria called on a local private employment agency to recruit 4 staff. The project was completed in two months and delivered a solution that the client could not have fulfilled himself in the same timeframe. The market expertise and one-stop-shop nature that private employment services provide are what appeals to companies. In these cases private employment services manage all administrative tasks and contractual obligations as well as ensuring compliance with local laws and regulations. This outsourcing of HR needs allows companies to concentrate on their core business. CASE STUDY 3: RELOCATION OF A MANUFACTURING PLANT IN CHINA The experience of a company having difficulty in recruiting blue collar workers in its plants in Beijing and Shanghai provides a good illustration of the added value services that private employment services can provide. The company was facing challenges to recruit the labour it needed in order to meet the new demand and also to replace workers who had left. The labour market in both Beijing and Shanghai is very competitive, characterised by severe labour shortages and difficulty in enticing workers to move to the cities because of the high cost of living. In addition, operating costs in Shanghai are high for manufacturers, placing greater pressure on budgets and margins. China having experienced an average GDP growth of 8%+ pa over the past 1 years places enormous strain on HR departments and it requires strong local market knowledge to navigate the system. In this case the company only had access to fragmented market intelligence and was facing high operating costs as well as high levels of worker attrition due to a less competitive remuneration package. The insights of the private employment services as to how to operate under the local regime and within a shifting regulatory environment can be invaluable to companies in such situations and help them to accelerate management of bureaucratic processes and understand the options open to them.

31 Adapting to change I 31 Having examined this specific situation the agency recommended that the company relocate its plants to more labour intense cities. It dedicated a local expert to mapping the talent opportunities in 15 cities in China and over a period of just four months the expert mapped blue collar workers across the country and subsequently narrowed the choice to just six cities. The agency had established solid government relationships in each city which enabled it to collect accurate data and to present the company with a fully elaborated proposal. It is noticeable how those companies that are least flexible in offering a wide range of employment contracts are also those with the lowest penetration of agency work. Companies in the Netherlands, UK, Belgium, France, Germany and Ireland have a relatively high degree of flexibility and also enjoy significant agency work penetration rates. By contrast, countries including Slovakia, Portugal, Romania and Hungary with highly inflexible national labour law, companies are left with a limited ability to leverage the advantages agency work can bring and results in correspondingly low levels of penetration. Private employment services play an important role in supporting companies and acting as labour market intermediaries. The sector provides user organisations with access to an ever-expanding range of HR and employment services and a high level of local market knowledge and expertise. Often, private employment services act as an agent to workers by helping them access the next assignment. Furthermore, many large corporations prefer to go through private employment agencies to avoid the often time-consuming recruitment process themselves. In India for example, 5% of attrition in the agency work sector is workers joining user companies on a permanent basis. CASE STUDY 4: US PRIVATE EMPLOYMENT SERVICES TAKE OVER CERTIFICATION AND SCREENING FUNCTION A healthcare company requiring specific skill-sets in its clean production facility but finding a dearth of candidates, called on an agency for assistance. The agency created a full workforce solutions programme whereby it benchmarked the skills-set needed, created an 8-day training programme to develop the skills and developed a pipeline of high potential entry level operators. Companies also turn to private employment services to help them manage complexity and risks in markets with which they are not familiar with. This enables them to be confident that they are operating to the highest standards as the industry is increasingly self-regulating and ensuring that all players meet a common level of professionalism.

32 32 I Adapting to change CASE STUDY 5: INCREASING EFFICIENCY IN AUSTRALIA A complete solution to increase the efficiency of the clients HR was created by a private employment agency in Australia, making it the largest and most complex outsourced contract and the first of its kind in the world. The agency introduced a new recruitment process to recruit all personnel for the user company and developed a collaborative organisation spread over 17 recruiting centres around Australia comprising more than 55 personnel. The efficiency and quality of candidates delivered to the user company resulted in controlled costs, improved technology and the ability to innovate as well as the better alignment of responsibilities and more reliable management information. PRIVATE EMPLOYMENT SERVICES ENABLE MORE JOB OPTIONS AND WORK OPPORTUNITIES FOR PEOPLE Private employment services also help people to realise their diverse range of expectations regarding work. In a world where people live longer and because of reduced pensions may need to work longer, new attitudes and approaches to work are emerging. Workers are increasingly interested in new ways of working (combining flexibility and security) and want to organise their professional life in order to strike a better balance between work, leisure or family interests. Whether it is wanting to work part-time in order to care for family, students wanting to make some money over the summer or people wishing to devote more time to their personal interests, the trend points toward changing attitudes to work. In the new reality of work, it should be recognised that an increasing range of work contracts is needed to meet diverse expectations and attitudes to work. In France, Belgium or Italy for example, there are currently more than 3 different types of work contract, reflecting increasingly diversified labour markets. In several countries, the private employment services industry is able to offer a wide range of contractual arrangements (specific temporary agency work contracts, fixed-term contracts, part time contracts, permanent contracts, apprenticeship contracts...), allowing it to serve a range of profiles and situations of people looking for work and skills development. The variety of the agency workers profiles (see Figure 11) reflects people s increasingly diverse attitudes towards work and expectations of it. Global statistics reveal that an average of 3% of agency workers are not looking for a permanent job (in Japan this figure is 55%) while 43% of agency workers choose this type of work because they want to work in a flexible way (in Australia 8% of agency workers gave this as their reason for choosing agency work). 5 Source: Ciett National Federations Meanwhile an average of 42% of people claim that they chose agency work as a means of gaining work experience and this figure was over 7% in Belgium (see Figure 12). 5

33 Adapting to change I 33 Figure 11 The range of agency worker profiles increases labour market participation and diversity Students Workers reentering the labour market Workers looking for a permanent job First time entrants Flex Professionals Senior workers (make money to fund studies and/or vacations) (work as temps after period of unemployment/ maternity leave) (Second best choice but see agency work a stepping stone) (enter the labour market and gain first work experience) (not looking for a permanent contract) (remain employed to get additional incomes) Figure 12 Agency work is able to serve a very diverse set of motivations PEOPLE CHOOSE TO WORK AS A AGENCY WORKER IN ORDER TO... % of respondents agreeing to the statement, % 42% 43% 3% 23% Belgium Netherlands Norway Sweden Switzerland Australia Brazil Japan USA Find a permanent job Gain work experience Work in a flexible way Not looking for permanent job Get information and advice in searching for job Source: Ciett national reports Average across countries

34 34 I Adapting to change Private employment agencies recognise that a wide group of agency workers chooses their services often out of necessity rather than out of real choice, because they can t access or remain in a permanent job. In that case, working through an agency might be a default choice, but the alternative is often undeclared work, unemployment or relying on the support of the welfare state. In France for instance, 4% of agency workers declare that they decided to work through an agency because they could not find a permanent job. However, 6% of them cite the possibility of finding a job quickly as their first reason for turning to agency work (See Figure 13). Figure 13 Reasons for choosing agency work mainly positive In France, only 4% of the workers choose agency work because they have no other choice WHAT IS THE MAIN REASON YOU DECIDED TO WORK AS AGENCY WORK? % of total respondents % Only motivation where agency work not bringing positive value to worker Lifestyle motivations with strongest growth % % To quickly find a job Could not find a temp or permanent job To get a professional experience To find a permanent position at the PrES client To get diverse experiences before making a career choice To work when I want To fill my spare time with work Note: choices are not exclusive Source: Regards croisés sur l intérim, l Observatoire des Métiers et de l Emploi, April 211 For many the private employment services industry is the ideal partner to meet the needs of people looking for more individualised work solutions. It offers a wide variety of occupations in many different industry sectors, thereby providing workers with a great deal of choice and the opportunity to seek out employment in line with their interests and future development goals. In Australia for example, agency workers represent 12.7% of the mining industry workforce, 11.8% of workers in the finance and insurance sector and 11.6% of workers in the ICT industry 6. 6 Source: ABS Forms of Employment 28 (in Adecco Group Australia Temporary Labor Report 211) In many countries, agency work is increasingly recognised as a lifestyle choice and agency workers show high levels of satisfaction with the flexibility and work/life balance that agency work provides them. European research from the French bipartite institute L Observatoire des Métiers et de l Emploi showed that 83% of people in the UK and 76% in Poland would recommend agency work and more than 5% of workers in Belgium claim they have deliberately chosen agency work and that it offers diversified work (Figure 14).

35 Adapting to change I 35 Figure 14 In many countries agency work is being recognised as a lifestyle choice WOULD YOU RECOMMEND AGENCY WORK? CAN AGENCY WORK HELP IN HAVING A BALANCED LIFE? % of respondents agreeing with the statement, 21 % of respondents agreeing with the statement, 21 1% 1% 8% 6% 4% 83% 76% 74% 69% 62% 55% 49% 42% 8% 6% 4% 66% 6% 58% 52% 46% 38% 35% 35% 2% 2% % UK PL BE FR NL IT ES DE % UK PL NL BE FR IT ES DE Several countries showing high satisfaction level with agency work Note: AW agency work Source: Regards croisés sur l intérim, l Observatoire des Métiers et de l Emploi, July 21 CHAPTER SUMMARY In the new reality of volatile, unpredictable and complex labour markets, the need for private employment agencies to identify openings and manage the transition of workers is has grown significantly. The private employment sector offers an array of added-value services to help companies to adapt better and faster to economic cycles and to be able to focus on their core business. They reduce time-lag between recovery and job creation and increase the range of choices and work opportunities for people.

36 36 I Adapting to change Chapter 2 Private Employment Services reduce both structural and frictional unemployment Employment services improve efficiencies by matching supply and demand. Michael Weber, Economist, World Bank

37 Adapting to change I 37 In Europe, as stated by EU Commissioner for Employment, Social Affairs and Inclusion László Andor, some 2% of jobs are created or destroyed each year and depending on the Member State, up to 3% of all workers may be hired or leave their employers each year 7. New technologies are creating new sectors which require new skills and jobs while others are disappearing and taking with them previously established employment sectors. At the same time the geographic shifts brought about by globalisation, trade liberalisation and population evolution are changing the importance and competitiveness of different countries and regions around the world, leading to pockets of high unemployment that coexist with areas where vacancies remain unfilled. Due to the demographic shifts, some countries will face aging populations, while others will experience a population boom leading to a mismatch of talent and employment opportunities around the world. Sectoral shifts modify economies profoundly. In the developed world, jobs in agriculture and manufacturing are declining while demand for labour in the service and creative industries continues to rise. With the increased focus on IT and connectivity service workers today require a completely different skill-set from even a decade ago. As a result, both structural and frictional unemployment have been rising over the years, and particularly affecting young people. That picture is remarkably similar right across the globe, revealing a clear trend in more and less developed economies. The private employment services industry contributes to reduce these two dimensions of unemployment: structural unemployment by creating new jobs and skills; and frictional unemployment by ensuring a better match between supply and demand of work and increasing transparency in labour markets. As shown in Figure 15, the level of development of agency work and the unemployment rate follow inverse patterns. Figure 15 Agency work and unemployment display inverse patterns % 15 ITALY % % BELGIUM % % DENMARK % % 15 FRANCE % % GERMANY % % IRELAND % Source: Ciett, OECD Unemployment rate TAW penetration rate 7 Opening Speech of the Conference on the Future of European Labour Markets, Brussels: 211, SPEECH/11/167

38 38 I Adapting to change Figure 16 Agency work does not substitute permanent work Almost two thirds of user organizations would not have created jobs if they had no access to agency work ALTERNATIVES TO AGENCY WORK CONCLUSIONS % of responses (total = 11) % 54% 8% No job creation (62%) 12% No substitution (74%) 26% Confirms results from earlier surveys 74% of companies do not consider hiring permanent workers an alternative to agency work In 62% of the cases there would be no job creation as companies chose internal flexibility or not to do the work Total Internal flexibility solution Not do the work Other external flexibility solution Hire permanent workers Source: User organization survey, BCG analysis PRIVATE EMPLOYMENT SERVICES CREATE MORE JOB OPTIONS WITHOUT SUBSTITUTING PERMANENT CONTRACTS The private employment services industry is an engine of job creation. In the USA, private employment services provided 41, jobs in 21, the largest annual growth posted since Meanwhile in Europe, since the low point of the economic crisis in 29, the sector has so far provided at least 9, new jobs on top of the 3 million agency workers that have remained employed throughout the downturn. This builds on the performance during the period from 22 to 27 when 1.3 million new jobs were created by the industry. Private employment services are an engine of job creation and help to boost employment by turning available work into jobs. The sector creates jobs that otherwise would not exist and is particularly effective in placing disadvantaged and under-represented groups in society, thereby providing a way for them to start to access job markets and join the world of work. 8 Source: User organisations survey & BCG analysis April Source: personal inhyrningen i sverige, En studie av 5 arbetsgivares anlitande av bemanningsföretag, Bemanningsföretagen/ Almega The research underlines that 74% of user organisations would not consider hiring permanent workers as an alternative to taking on agency workers. In addition, 62% of the companies would choose internal flexibility solutions (such as overtime) or not to do the work if they had no access to agency work, resulting in a no job creation situation (Figure 16). 8 The average length of assignments (around 3 months) and the high turnover of agency workers prove that these jobs are not substituting permanent ones, but correspond to new ones. A similar survey carried out in Sweden backs up this analysis. Only 19% of respondents considered hiring a permanent employee to be a viable alternative to hiring an agency worker (Figure 17). 9

39 Adapting to change I 39 Figure 17 Survey on alternatives to using agency work REASONS FOR HIRING AGENCY WORKERS ALTERNATIVE TO HIRING AGENCY WORKERS Special qualifications or expertise Test if a new position is needed 7% 23% Finding substitutes 1 49% Difficulties in finding staff 25% Temporary peak in production Quick adjustment of workforce (size) Less administration 38% 43% 49% Placed order elsewhere Not do the work 11% Move production abroad Take on fixed-term employees Take on permanent employee 3% 2% 19% 71% NO JOB CREATION NO SUBSTITUTION Do not know 2% Do not know 11% % of respondents agreeing % of respondents agreeing 1. i.e. replacement for employees on leave parental, sick, vacation etc Source: personal inhyrningen i sverige, En studie av 5 arbetsgivares anlitande av bemanningsföretag, Bemanningsföretagen/Almega ENSURING A BETTER AND FASTER MATCH BETWEEN SUPPLY AND DEMAND Key roles of private employment services lie in their matching function between supply and demand, and their delivery of greater transparency in labour markets. Private employment services have a tactical role in easing transitions and reallocations in labour markets. By successfully and intrinsically staying close to the workplace and understanding the market needs, they are able to match supply with demand in order to maintain people in work and drive labour market efficiencies. In recent years the industry was therefore seen as a job creation engine in times of economic prosperity, interrupted only in times of severe economic crisis. At global level, the number of agency workers in 21 increased by 1% compared with 29, while in Europe the activity of private employment services is expected to head toward its pre-crisis level by the end of 211 (Figures 18 & 19). Private employment services actually start to create jobs even at low levels of GDP growth as illustrated by this longer term analysis of the Belgium marketplace where agency work can be seen to perform in line with GDP and begin significantly ahead of total employment (Figure 2). This has the effect of jump-starting the economy and delivering jobs ahead of the classic job creation curve. Almost 6% of Belgian workers of 45 years of age choosing agency work did so to use the industry as a stepping-stone to a permanent job 1. 1 Federgon: 211

40 4 I Adapting to change Figure shows increase of agency workers in the world Agency workers (FTE, ') , Europe 1 RoW Consistent group with previous strategic report; includes Austria, Belgium, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, UK 2. Rest of the World includes Argentina, Australia, Brazil, Chile, Japan, Mexico, South Africa, South Korea, USA data estimated for Spain data estimated on the basis of available data and extrapolated to all other countries 4. Forecast base on analyst revenue estimates for the industry Note: Some data points for individual countries are based on industry estimates; Aworker figures measured in daily average numbers [in full-time equivalents] Source: Ciett national reports; industry estimates; Analyst estimates; BCG analysis Figure 19 Number of agency workers in Europe is expected to reach pre-crisis level in 211 European agency workers 1 (FTE, ') % +11% , Consistent group with previous strategic report; includes Austria, Belgium, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, UK data estimated for Spain data estimated on the basis of available data and extrapolated to all other countries 4. Based on Staffing Industry Analyst growth forecast for 211 Note: Some data points for individual countries are based on industry estimates; Aworker figures measured in daily average numbers [in full-time equivalents] Source: Ciett national reports; industry estimates; Analyst estimates; BCG analysis

41 Adapting to change I 41 Figure 2 PrES allow lower level of GDP growth needed to create jobs Analysis of longer time series for Belgium GDP / employment year-on-year growth (quarterly, %) 1 5 AW year-on-year growth (quarterly, %) 4 GDP AW Employment Employment recovery AW recovery -4 1/1991 3/1991 1/1992 3/1992 1/1993 3/1993 1/1994 3/1994 1/1995 3/1995 1/1996 3/1996 1/1997 3/1997 1/1998 3/1998 1/1999 3/1999 1/2 3/2 1/21 3/21 1/22 3/22 1/23 3/23 1/24 3/24 1/25 3/25 1/26 3/26 1/27 3/27 1/28 3/28 1/29 3/29 1/21 3/21 Agency work performs in line with GDP and starts significantly ahead of total employment Note: GDP YoY growth figures for 1995 estimated Source: federgon The presence of private employment services helps to drive job creation as it enables organisations to manage workforce flexibility in line with fluctuations in economic activity. Those markets in which private employment services face overly strict regulatory conditions or are barred from operating in some sectors are ill-prepared to manage these fluctuations and leverage the opportunity they present. It is these same markets that have fared least well in the economic crisis such as Greece, Spain and Portugal in Europe - and are experiencing the highest levels of unemployment, especially among young people. An examination of those countries continuing to perform well in 29 including the Netherlands, Germany, Switzerland and Sweden reveals that 75% of companies are using agency work to deal with fluctuations in demand caused by seasonality and economic cyclicality. The inclusion of agency work as a reliable, flexible staffing approach has also been invaluable in China where it has helped companies manage the hyper-growth experienced over the past ten years. Consistent GDP growth of 8% and above has meant that both established companies and new entrants have been faced with significant hiring requirements often needing to hire thousands of employees at once. In a country where labour law is still not fully realised and the regulatory environment is relationship driven, agency work has supported over-stretched HR departments and facilitated widespread hiring. It has also used its relationships and knowledge of the local workforce and of the regulatory environment to accelerate bureaucratic processes and deliver swift solutions.

42 42 I Adapting to change AGENCY WORK REDUCES UNDECLARED WORK In addition to having a positive impact on employment levels, increased use of private employment services has the added advantage of reducing undeclared work in the economy by providing an organised and regulated form of flexible work. As shown in Figures 21 & 22, there is a strong correlation between the level of agency work penetration and the volume of illegal activities: Countries with a high penetration rate of agency work have lower levels of illegal economic activity. Figure 21 Agency work contributes to the fight against undeclared work Countries with high agency work have lower levels of illegal economic activity 5 TAW penetration (% of workforce) 4 United Kingdom R 2 =.41 3 Netherlands 2 U.S.A. Austria Switzerland Japan France Ireland Germany Sweden Belgium 1 Finland Denmark Norway Portugal Spain Italy Greece Calculated using the currency demand approach and the MIMIC method; for more information see "The Influence of the economic crisis on the underground economy in Germany and the other OECD-countries in 21: a (further) increase" by Dr. Friedrich Schneider Note: 28 figures used in order to remove impact of crisis Source: Prof. Dr. Friedrich Schneider, Department of Economics, Johannes Kepler University of Linz, 21 Illegal economy (% of GDP) 1 The Italian labour market serves as an excellent illustration (Figure 23) for relationships with both undeclared work and unemployment. A steady decline in the unemployment rate can be seen from over 11% when agency work was legally recognised in 1998 to a low of less than 7% in 27 when agency work penetration peaked at 1% of the job market. Furthermore the legalisation of agency work also coincided with a decreasing level of illegal work from 27% in 1998 to a low of 22% over the same period. In India, where the labour market is highly fragmented and boasts some 5+ million workers, organised employment (based on formal, written employment contracts) has been stagnant for many years leaving unorganised employment (without written employment contracts or undeclared) that is responsible for some 8% of the workforce. By creating new, formal job opportunities each year, the private employment services industry plays a key role at institutional level in reducing both unemployment and undeclared work. For the workers, the industry provides

43 Adapting to change I 43 Figure 22 Reduction in illegal economy relates to increase in agency work Increase in illegal economy, decrease in agency work in 29 dues to the crisis CHANGES IN THE LEVEL OF ILLEGAL ACTIVITY CORRESPOND WITH CHANGES OF AGENCY WORK LEVELS European average 1 % Illegal economy 2 % AW Germany % Illegal economy % AW UK % % / Italy 25.5 Illegal economy AW penetration / : Average of 16 countries, for full list see appendix 2. Measured as % of total GDP 3. AW penetration Note: Two year averages for 1997/98, 1999/, and 1/2 Source: Prof. Dr. Friedrich Schneider, Department of Economics, Johannes Kepler University of Linz, 21 agency workers with decent work, safe working conditions and a reassurance that they will be paid. Rights such as social security which private employment services afford their agency workers are rare in India where some 35 million workers are not organised formally and so receive no such entitlements. Figure 23 Agency work helped reduce unemployment & illegal economy in Italy Agency work regulatory changes and their positive impact on level of unemployment and illegal economy Illegal economy (% of GDP) Unemployment rate (%) 3 TAW penetration rate (%) 1.2 Legal recognition of agency work in Italy Regulatory changes in favor of AW Unemployment rate TAW penetration rate Illegal economy Unemployment rate started to decline right after introduction of agency work Source: OECD, Ciett national reports, GiGroup

44 44 I Adapting to change PRIVATE EMPLOYMENT SERVICES HELP TO IMPLEMENT ACTIVE LABOUR MARKET POLICIES AND COOPERATION WITH PUBLIC EMPLOYMENT SERVICES Private employment services help to reduce structural unemployment by contributing to the implementation of active labour market policies and working in cooperation with public employment services. This cooperation ensures maximum efficiency in driving higher labour market participation rates and contributes to the inclusion of people formerly outside the labour markets (jobseekers, inactive, students). Best practice examples exist across Europe and mark a growing trend (Figures 24 & 25). As of 25, public employment services in France have been able to outsource placements to private employment services leading to 32, placements in 21 and , of these placements were for special target groups including young people without qualifications and the longterm unemployed. Figure reform ends public monopoly of job placement Intervention of intervention of private employment agencies (PrEAs) January 25 : The law for social cohesion has put an end to the public employment services monopoly on job placement every employment intermediary, whether public, non profit or private (such as private employment agencies or PrEAs ), is allowed to participate in job placement as long as services to the unemployed remain free and non discriminatory Outsourcing of placement with 15 unemployed people Outsourcing of placement with 5' unemployed people (5 PrEAs ) Outsourcing of placement with 4' unemployed people (17 PrEAs ) Outsourcing of placement with 32' unemployed people (34 PrEAs) "THE EMPLOYMENT PATH" Concerns 17' unemployed people in difficulty Targeted population: young people without qualifications, recipients of the government aid "RSA" (welfare to work scheme), the long-term unemployed INDIVIDUALIZED FOLLOW-UP OF THE LAID OFF WORKERS Covers 15 people Targeted population: unemployed people under CRP (Convention de reclassement personnalisé) dedicated to help laid-off workers with special, higher, benefits and help to find work again quickly over eight months) In Australia, the activities of public employment services have been totally outsourced to the private sector (Figure 26). In comparison with the situation before outsourcing, the current system is showing about three times the output performance at approximately one third of the cost.

45 Adapting to change I 45 Figure 25 PES and PrES in Netherlands formed partnership Characterization of the way from co-existence to co-operation and elements of today's system Phase 1 until 198 Phase Phase Phase 4 28-today No cooperation PES PrES PES and PrES coexist and target same population START (public temporary work organization is being founded START is operating as tripartite organization (representatives of employers organizations, union, and the government) Public financial arrangements Different financial arrangements established to help target groups Arrangements include among others the funding of placement and consultation, project based grants PrES are involved in facilitating all these arrangements PrES take responsibility PrES help companies in need during time of mass dismissals Private mobility centers are being established in cooperation with PES Public-private cooperation anchored in policies Governments fully value PrES as part of the solution Public-private cooperation mentioned in most labour market policies as a means of solving labour market problems PrES are represented in labour market advisory board for government (RWI: Raad voor Werk en Inkomen ) Elements of today's cooperation PrES execute speed dating sessions at PES locations Specific projects are run jointly to help people about to become unemployed finding an new employer right away (from work to work constructions) Youth unemployment pacts with municipalities including among others 2'5 PrES-trainees and 1'5 "Learn-and-work-jobs" Source: ABU Figure 26 Full outsourcing of PES to PrES in Australia SITUATION The Australian labour market is characterized by low unemployment levels, but at the same time widespread skill shortages and a constantly growing proportion of highly disadvantaged and longterm unemployed job seekers The Australian government outsourced its complete public employment services to private and non-profit organizations Australia is the only OECD country with this kind of system (1% outsourcing) The outsourced "government funded employment services" include ~5' internal staff in about 3'5 locations The system of service outsourcing is building on a complex contractual relationship to avoid - among others - "cherry picking" of private agencies in terms of job seekers they chose to place The more disadvantaged the job seeker, the higher the reward for the agency placing the person There is a performance measurement system in place across the country Not placing disadvantaged workers would result in a bad score of the respective agency which would result in the agency losing its license to operate as a government funded employment service Approximate number of locations 6, + ~3, 4, 2, 3,5 RESULT Job seekers see the system as complex due to the contractual agreements that are in place, but clearly see and value the advantages and benefits arising for them Satisfaction levels in general are very high among all stakeholders and especially governments clearly value the efficiency of the system and the positive impact it has on the public budget Compared to the situation before outsourcing, the current system is showing about three times the output performance with approximately one third of costs Australia among OECD countries with lowest level of public funding of employment services 4 Before outsourcing Current system Source: Expert interview S. Sinclair, CEO NESA (Australian National Employment Services Association), Australian Government discussion paper "The future of Employment Services in Australia", 28

46 46 I Adapting to change In emerging markets such as India, where high levels of illiteracy (25% of men and up to half of the female population) make employability a significant problem, private employment services are serving a crucial role. 11 They deliver the specialist knowledge needed to navigate the complex regulatory framework for organised labour with different labour compliance requirements across the country s 28 States and 7 territories, and no less than 22 recognised languages. As existing experiences show, one change in an organisation s social security scheme may require 26 different approvals and many multi-national companies find they don t have the knowledge or the connections to manage these complexities. With the often restrictive, outdated and only selectively enforced labour laws posing an added challenge, private employment services can help corporations to manage complex legal environments leaving them free to concentrate on their core business (see Figure 27). Figure 27 PrES helps employers in India manage complexity EMPLOYABLE WORKERS ARE DIFFICULT TO FIND THE REGULATORY ENVIRONMENT IS COMPLEX TO MANAGE % of population LITERACY RATES, Restrictive and outdated laws selectively enforced i.e. all employees must provide traditional clay drinking vessels of water to employees, regardless of whether they also provide modern water systems Multinational corporations often do not have the required connections to operate under such a regime Male Female Total Illiterate Some literacy "[Making deals with officials is] not something corporate India likes to do, but sometimes there is no other way" Infrastructure challenges require a specialist 22 languages recognized by the government, with each state designating their own labour compliance requirements differ across India's 28 states and 7 territories "Employability is a huge problem" "One change in your social security scheme might require 26 different approvals" 11 Source: Report of the Task Force on Employment Opportunities, Planning Commission, Government of India, July 21; TeamLease India Labor Report 25; expert interview; UNESCO Source: Report of the Task Force on Employment Opportunities, Planning Commission, Government of India, July 21; TeamLease India labour Report 25; expert interview; UNESCO Adding to its services, the sector can also play a role in integrating immigrant populations into the labour market as has been seen in Denmark where private employment services have provided a useful support to the public employment services by securing jobs for non-western immigrants who are traditionally hard to place.

47 Adapting to change I 47 CHAPTER SUMMARY As a labour market intermediary, the private employment sector is able to better match supply with demand in the workplace by creating jobs, fighting undeclared work and reducing both frictional and structural unemployment. The industry supports governments in implementing active labour market policies, especially through cooperation schemes with the public employment services.

48 48 I Adapting to change Chapter 3 Private Employment Services drive down segmentation in labour markets With private employment services, people have the chance to directly transfer into another fitting job assignment Paul Ginocchio, Financial Analyst, Deutsche Bank

49 Adapting to change I 49 AGENCY WORK FACILITATES TRANSITIONS AND UPWARD MOBILITY Private employment services contribute to the elimination of market segmentation by facilitating transitions, upward and sideward mobility. These can be from education to work, from unemployment to employment, from temporary positions to permanent posts and from jobs to jobs. It also stays close to the workplace in order to enable transitions across sectors in line with demand and economic growth. This stepping-stone function to the world of work helps to bring access to work for those who would otherwise not secure a job. By providing people with decent work and exposure to labour markets private employment services increase the wider employability and mobility of workers. They provide or facilitate both vocational and on-the-job training which can be used as a stepping stone to other work. In France, just 11% of workers had jobs before they took up agency work, and this figure jumped to 66% working thanks to agency work. In Norway the percentage of people employed jumped from 16% to 65% due to agency work and in Sweden labour market participation rose from 34% to 85% (see Figure 28). The same picture is replicated on an international level with South Africa showing just 15% of workers in jobs before accessing agency work and 61% 12 afterwards (see Figure 29). Research carried out in several countries over time shows that on average one third of agency workers get a permanent job 12 months after entering a private employment agency. Figure 28 Agency work provides a stepping stone into employment in Europe By bringing people into employment agency work also reduces the segmentation of the labour market (%) 1 5 5% 7% 66% 59% 68% 65% 34% 85% 47% 71% 11% Czech Republic France Netherlands 1 Norway Sweden 1 Switzerland 16% % working before AW % working after AW Other Temporary agency worker Previous situation of agency workers 45% 65% Post situation of agency workers Unemployed Student Inactive Employed fixed-term Employed open-ended data Note: 21 data if not otherwise stated Source: Ciett national reports 29, Source Apso 21

50 5 I Adapting to change Figure 29 In South Africa, agency work helps unemployed people to enter the labour market % 1 SOUTH AFRICA Previous Situation of agency workers 15% working Post situation of agency workers 61% working Other Unemployed Student Inactive Temporary agency worker Employed fixed-term Employed open-ended Source: Ciett national reports 29 The industry s ability to identify new work opportunities also ensures that workers remain in ongoing work and that the provision of the skills training necessary for the jobs available serves to smooth the process for both employers and workers. Some 35% of agency workers are under 25 years of age 13 and agency work is often their first exposure to the labour market (Figure 3). It provides work experience for those entering the workplace and reassures them that they will be working with a quality employer and undertaking decent work. It also allows students to complement their studies by gaining concrete work experience. This stepping-stone function provided by private employment services is largely recognised by workers, who widely acknowledge (from 59% to 92%) that agency work is an efficient way of finding a first job but also of securing a permanent, full time position (Figure 31). 13 Ciett national federations

51 Adapting to change I 51 Figure 3 Agency work provides needed opportunity for young people % of young workers (<25 years) in 29 6 TAW Employed population 47% 4 4% 37% 33% 29% 26% 25% 24% 2 16% 13% 7% 6% 9% 1% 9% 11% Netherlands Switzerland Belgium Italy France Sweden Poland Germany Several countries showing high satisfaction level with agency work Source: Ciett national reports, Euromonitor Figure 31 Stepping stone effect largely recognised by workers IS AGENCY WORK EFFECTIVE TO FIND A FIRST JOB? IS AGENCY WORK EFFECTIVE TO FIND A FULL-TIME JOB? % of respondents agreeing with the statement, 21 % of respondents agreeing with the statement, 21 1% 8% 6% 4% 92% 86% 85% 84% 82% 8% 71% 59% 1% 8% 6% 4% 9% 78% 77% 69% 61% 52% 43% 4% 2% 2% % UK BE PL FR ES NL IT DE % UK NL PL BE FR ES DE IT High perceived value of agency work both to get into the labour market and find a full-time job Note: AW agency work Source: Regards croisés sur l intérim, l Observatoire des Métiers et de l Emploi, July 21

52 52 I Adapting to change Figure 32 PrES increase probability of finding permanent employment Example: The stepping stone effect in the Netherlands SITUATION An academic study investigates to what extent agency work helps unemployed get back into the labour market faster To observe this the probability to get back into permanent employment at any point in time is being investigated for two different situations: Engagement in agency work during time of non-perm. employment Being unemployed RESULTS Graph shows that probability of having found a job after certain time significantly increases if engaged in agency work Initially, difference is small because worker strongly attached to his agency work assignment Difference starts to spread after 1.5 years Difference increases over time indicating that experience accumulation is appreciated by user organizations Acceptance of agency work does not lead to time reduction in permanent position Study finds evidence that regular jobs found through agency work pay higher wages cumulative probability Cumulative probability of moving back to regular work, directly or through temporary work 1..9 Directly or through temporary employment.8 Direct route only months since start of unemployment Source: Marloes de Graaf-Zijl & Gerard van den Berg & Arjan Heyma, 29. "Stepping stones for the unemployed: the effect of temporary jobs on the duration until (regular) work," Journal of Population Economics, Springer, vol. 24(1), pages CASE STUDY 6: NETHERLANDS (FIGURE 32) The impact of the stepping-stone effect is particularly important during times of recession when workers benefit from the opportunity to re-enter the job market after a spell of unemployment. A 29 study carried out in the Netherlands by Marloes de Graaf-Zijl, Gerard van den Berg and Arjan Heyma 14 finds that the probability of finding a job increases significantly if a worker is engaged in agency work and that this increases over time as user organisations appreciate the experience accumulated. The study also finds evidence that regular jobs found through agency work pay higher wages providing further evidence of upward mobility. This study showed that some 8% of temporary agency workers move on to a permanent job within 12 months and the sector provides upward mobility in the workplace as they gain experience and expertise. 14 Source: Marloes de Graaf- Zijl & Gerard van den Berg & Arjan Heyma, 29. Stepping stones for the unemployed: the effect of temporary jobs on the duration until (regular) work, Journal of Population Economics, Springer, vol. 24(1), pages PRIVATE EMPLOYMENT SERVICES INCREASE LABOUR MARKET PARTICIPATION AND DIVERSITY, LEADING TO MORE INCLUSIVE LABOUR MARKETS Through the stepping-stone effect agency work provides access to employment for many people and thereby increases labour market participation and reduces segmentation. Based on Ciett and The Boston Consulting Group calculations, in 21 more than 12 million workers in Europe used the services of private employment agencies to enter the labour market, change jobs or move upwards towards permanent positions (see Figure 33).

53 Adapting to change I 53 Figure million people estimated to have worked as temporary agency workers in 21 Calculations for Europe WHEN APPLYING THE AVERAGE MULTIPLE OF FTE TO TOTAL WORKERS TO THE EUROPEAN FIGURES......ONE CAN ESTIMATE THE ABSOLUTE NUMBER OF WORKER IN THE INDUSTRY IN EUROPE Average multiple: showing increase in number of temporary agency workersin Europe European TAW 1 (FTE, ) 4, 3,924 3,47 3,535 3,5 3,131 3,68 3, 2,955 2,739 2,65 2,5 2, 1,5 1, Absolute number of TAW employed in Europe (') 15, 1,342 1,96 12,145 13,734 13,297 12, 9, 6, 3, ,118 9,587 1,738 12, Consistent group with previous strategic report; includes Austria, Belgium, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, UK data estimated for Spain data estimated on basis of available data and extrapolated to all othezr countries. Note: Some data points for individual countries were estimated on the basis of data from previous and subsequent years; TAWorkers figures measured in daily average numbers (in full-time equivalents). Source: Ciett national reports; randstad estimations; BCG analysis. The industry is a significant employer and provides opportunities to a large number of individuals Source: Ciett national reports, BCG analysis Private employment services help to drive up labour market participation. They are not only agents of job creation but they also increase the range of job options being made available in the labour market. The sector is particularly effective in placing disadvantaged and under-represented groups of society such as youth, women and the long-term unemployed and providing a way for them to start to access the job market and join the world of work. One of the many services private employment services offer to disadvantaged workers is facilitating access to the labour market (taking care of the job search function on behalf of the jobseeker), allowing employers to recruit these disadvantaged workers with a low risk (probation period) and offering contractual arrangements that meet the constraints of these workers (need to gain confidence again by working part-time or for a limited period of time to start with). By reducing illegal work as well as unemployment and by providing work opportunities for people who are furthest away from employment, private employment services increase labour market participation and diversity.

54 54 I Adapting to change In recent years, practices in Europe have demonstrated that tailor-made active labour market policies are needed to deliver high levels of labour market participation and so the role of the industry in driving up labour market participation is important and warrants further exploration. In addition to bringing large numbers of people into the workplace, agency work has a positive impact on gender balance in some markets particularly those with a higher share of service industries. In Argentina, Japan, Sweden and the US for example, women represent just 43%, 42%, 48 % and 47% respectively of the workforce as a whole but comprise 55%, 67%, 6% and 56% of the agency work market 15. In Japan especially, private employment services have helped women to enter a labour market that historically had been closed. Acting as intermediary, private employment agencies were regarded as socially acceptable. The sector therefore identified work opportunities and then provided skills training in order to equip and prepare women for the work available. The employability of women is key to addressing talent shortages in many countries. Given the shifting demographics women s participation in the labour market will become increasingly important as the present economic lifestyle progresses. In a number of developed economies notably in Europe and Japan the ageing population levels and tighter economic circumstances will require older workers to stay on in the workplace for longer. Projections made for the EU by Cedefop, the European agency for vocational training, show that by 22 replacement demand (mainly due to retirement) will amount to 73 million jobs 16. The share of older workers (5+) in agency work is increasing twice as fast as within the total employed population in some markets, although it is still currently under represented in the agency work industry (Figure 34). Figure 34 Older people represent an increasing share of agency workers FRANCE Share of older workers (>5 years) in TAW vs. employed population 4 BELGIUM Share of older workers (>5 years) in TAW vs. employed population % +5.9% 2 1 No earlier data available +3.4% +6.1% Employed population TAW 15 Source: Ciett National Federations 16 Cedefop Skills supply and demand in Europe - 21 Share of older people in temporary agency work increasing twice as fast as within total employed population 1. No 21 data available for share in AW Source: Federgon 29 annual reports, PRISME rapport économique et social 29, Eurostat LFS

55 Adapting to change I 55 Driving labour market inclusion will be an increasing challenge in the northern hemisphere which will face a lack of workers. Being able to retain and integrate older people into the workforce will be crucial and projects initiated by the private employment services in Germany, Spain and the Netherlands have successfully used focused selection and trainings in order to provide internships and ultimately employment contracts for workers of 5+. In Spain, more than 6,3 people over 45 have re-entered the labour market and in the Netherlands specialised branches cooperating closely with pubic employment services have succeeded in getting older workers back into employment. Private employment services have a far broader citizen reach than public employment services. This is due to the industry s extensive branch network (see Figure 35), number of devoted recruitment consultants and global presence. The industry s extensive network capacity is also used for particularly vulnerable groups such as war refugees (see Figure 36), and allows the industry to be well positioned to drive inclusive labour markets in the decades to come. Other examples of initiatives developed by the industry to help people being furthest away from the labour market include training projects to combat illiteracy, campaigns to fight discrimination at work, programmes to support ex-convicts to get a job, or the setting up of non-profit organisations aimed at improving the lives of socially excluded people and communities. Figure 35 Private employment services have broader reach than public ones Branch per ' active citizen (29).6 Private Employment Services Public Employment Services.4.2. Netherlands UK Denmark Norway Belgium France Sweden Germany Netherlands and UK, countries with high agency work penetration, showing densest private branch network Note: Number of PES in the UK estimated based on available branches listing and cities sizes Source: Ciett, OECD, National Public Employment Agencies, BCG analysis

56 56 I Adapting to change Figure 36 PrES help war refugees find employment Sweden SITUATION A small Swedish municipality and a private employment agency have formed a joint company for helping refugees with residence permits and the long-term unemployed gain employment quickly Objective Try alternative routes to increase the share of self-support among difficult to integrate population Currently it takes 7 years for a male refugee and 11 years for a female one to become self-supported Over 7% have no working experience in Sweden Over 5% had income support for more than 3 years Over 5% have a weak level in Swedish Stop rising segregation and stop the increase in benefit payments Form an economically self-sustainable joint venture ROLE OF PrES Make the individuals job-ready and employable Strengthen self confidence and increase motivation Set realistic goals and help pass remaining administrative hurdles (Truck Driver license, etc) Provide competencies to open doors to employment Find jobs and market participants Prepare and train candidates for the interview Provide support to the employers Source: Ciett member CHAPTER SUMMARY With its stepping-stone function helping workers to enter the labour market and then to transition smoothly to ensure that they remain in employment, the private employment sector helps to drive inclusive labour markets and increase participation particularly among the more disadvantaged groups in society. It therefore contributes to reducing segmentation.

57 Adapting to change I 57

58 58 I Adapting to change Chapter 4 Private employment services contribute to matching and developing the skills needed in the labour market Private employment services ensure the selection process for the employees and ensure they have the right skills and abilities for the job Philippe Haeberli, Head of technology and services, Swiss Post

59 Adapting to change I 59 MANAGING SKILLS TO DEAL WITH SEASONAL FLUCTUATIONS WITHIN SECTORS Seasonal fluctuations have a high impact on many industries. The classical sectors experiencing fluctuation in demand on a seasonal basis and needing to adapt their staffing policies accordingly include: Financial auditing, which needs to staff-up during the reporting season; Postal Services and the Catering sector which experience a seasonal uplift over the Christmas period; Commerce and retail; Construction sector which experiences variations related to the weather and the changing seasons; Tourism, which experiences high and low seasons. While demand often follows a predictable pattern, companies nevertheless need to manage this change every year and plan for increases and decreases in their workforce. Some organisations are able to adapt to these changes on their own by reallocating resources while others require external support in ramping up their workforce to cope with the busy periods (Figures 37 & 38). Private employment services, with their access to a wide pool of talent and ability to train workers in the skills that employers need, are well placed to support companies in such periods. As proven by data, the majority of the jobs therefore created by the sector that the sector creates are not substitutes for permanent employment, but are true additional jobs that otherwise would not have existed. Figure 37 Agency work addresses variability in demand Demand level Agency work Payroll $ Agency work Permanent Workforce Permanent workforce Time Source: Staffing industry analysts

60 6 I Adapting to change Figure 38 Seasonal fluctuations of agency workers in Germany (average 1995 to 21) 8, 6, 4,7 5,4 5,2 4, 2,6 3, 2,,,2,8-7,2-2, -,1 -,1 -,7-4, -2,9-6, -8, J F M A M J J A S O N D Monthly evolution of agency work in Germany shows peak of activity in Summer months Source: BAP One illustration of this evidence is the fact that a significant part of agency work is drawn from the student population. Students are not looking for a permanent contract but for a couple of working hours on a weekly basis to get some money, combining it with first working experiences. The share of students within the agency workers population can be as high as 33% (as in Netherlands 17 ). In Belgium, agencies supplied 173,845 student jobs in CASE STUDY 7: PRIVATE EMPLOYMENT AGENCIES AND SEASONALITY ON SWITZERLAND Agency work is an important element of the construction sector in Switzerland, helping it to manage its strong seasonal variations in demand. At its peaks the industry employs some 34, people an uplift of more than 1% (around 3,) workers compared with quieter periods. Agency work penetration in the construction sector is 4.1%, compared with only 1.5% in the Swiss labour market as a whole. As such, the construction sector comprises some 19% of agency work assignments in Switzerland (See Figure 39) 17 Source Abu/Ecorys Source Federgon 21

61 Adapting to change I 61 Figure 39 PrES help deal with seasonality in construction sector Illustration: Switzerland FLUCTUATIONS OF AGENCY WORK IN LINE WITH EMPLOYMENT IN CONSTRUCTION Swisstempindex Employment in Construction (') AGENCY WORK AS IMPORTANT FACTOR FOR FUNCTIONING OF CONSTRUCTION SECTOR IN SWITZERLAND Agency work is an important element of the construction sector in Switzerland Through agency work construction companies are able to balance their strong seasonal variations in demand The importance of agency work for the construction sector can be observed when looking at different figures 1 Q1/25 Swisstempindex (indexiert) Employment in construction sector ( ) Q3/25 Q1/26 Q3/26 Q1/27 Q3/27 Q1/28 Q3/28 Q1/29 Q3/29 Q1/21 Q3/ Agency work penetration rate in the construction sector is at 4.1% (6.6% in main construction industry) compared to only 1.5% in the total Swiss labour market About 19% of agency work assignments are within the construction sector PrES help companies to overcome economic barriers linked to strong seasonality Source: Swissstaffing CASE STUDY 8: PRIVATE EMPLOYMENT SERVICES AND SEASONALITY IN THE NETHERLANDS The Netherlands postal service experiences a surge in demand and mail volumes during the Christmas and New Year period and is not equipped to manage this extra workload by calling on its internal resources. The private employment services industry provides an extra 3, workers each year in order to boost capacity and enable it to meet the increased demand. CASE STUDY 9: PRIVATE EMPLOYMENT SERVICES AND SEASONALITY IN THE BELGIUM In Belgium the football season brings a significant increase in staff needed at the stadiums. An in-house solution developed by a private employment agency now trains staff at the start of the football season (in July). A dedicated person from the agency coordinates all training and is present at every match to ensure that all needs are being met.

62 62 I Adapting to change DEVELOPING SKILLS NEEDED TO MEET SECTORAL SHIFTS Global employment markets are facing an increasing demand for highly qualified people, with jobs increasingly requiring skills and higher or tertiary education. This request for higher skilled workers also reflects the sectoral shift taking place in many developed countries, where economies are turning more and more into services. At EU level, Cedefop 19 predicts that between 21 and 22, further substantial decline in employment in primary industries is projected (with a loss of around 2.5 million jobs, especially in agriculture). Job losses (around two million) are also expected in manufacturing and production industries. The main areas of employment growth are in services, especially marketed services and business, and other services are projected to see a growth of around seven million jobs. As a result, across the EU 27, workers with professional qualifications will comprise more than 31% of the employed population in 22 compared with 27.7% today. Meanwhile the percentage of workers with low qualifications in 22 will be just 19% compared with over 28% in the year 2 (Figures 4 & 41). Figure 4 Increase in demand for highly qualified jobs will continue Forecast for Europe until 22 PAST AND LIKELY FUTURE QUALIFICATION CHANGE FOR THOSE IN EMPLOYMENT, EU-27+ Employment EU 27+(M) High qualification Medium qualification Low qualification % 27.7% 31.1% % 49.5% 49.9% % 22.9% 19.% Forecast PrES help Swiss construction companies to overcome economic barriers linked to strong seasonality Note: EU 27+ = EU27 + Norway + Switzerland Source: Cedefop 21, Skills supply and demand in Europe, Medium term forecast upto Cedefop Skills supply and demand in Europe - 21

63 Adapting to change I 63 Figure 41 Europe will need more high-skilled workers for non-manual positions High skilled non manual occupations Skilled non manual occupations Replacement needs Net Employment change Skilled manual occupations Elementary occupations (labourers) M Note: Eu 27 + Norway, Switzerland Source: CEDEFOP 21; NSNJ 21 The private employment services sector is well placed to support this structural shift and deliver the skills needed in two ways. Firstly by helping workers to move from declining sectors to indemand sectors. Indeed, the activities of private employment services not only reflect but also help economies to adapt to sectoral shifts. As an illustration, the percentage of agency workers placed in service industries has risen some 1% in the past ten years in France, while numbers of agency workers assigned in the manufacturing industries decreased significantly (see Figure 42). Figure 42 Use of agency work in services sector growing in France 1.% SHARE OF AGENCY WORK PER SECTOR % 8.% 7.% 6.% Services 5.% 4.% Construction Manufacturing Agriculture 3.% 2.% 1.%.% Source: Dares, à partir des relevés mensuels de contrats.

64 64 I Adapting to change To accompany this shift to more services-oriented economies, demand for higher skilled workers is increasing. Private employment services have proven successful in meeting the demand caused by shifts in sectors. In the USA, the professional sector (i.e. higher skilled agency workers) has seen significant growth and now accounts for 55% of the staffing market compared with just 36% back in 1995 (see Figure 43). Figure 43 High skills segment now over half of US staffing market % of total revenue 1 Professional/specialty Industrial Office/clerical Total estimated revenue of "Temporary help" segment of the US staffing services market Source: Staffing Industry Analysts Private employment services have the ability to assign workers to economic sectors where the skills demand might be higher. In France, over a 2-month period (from March 29 to November 21), one third of surveyed agency workers employed in the manufacturing sector have moved into other sectors, mainly into services (Figure 44). The second contribution of private employment services to address the mismatch of skills and to plug the talent gap is training. The private employment services sector is well placed to support this need for greater vocational training and upgrading of skills. In Europe, in addition to the substantial training schemes directly developed by private employment agencies, the industry has also set up sectoral bipartite managed training funds in 7 countries (Belgium, France, Luxembourg, Netherlands, Italy, Spain and Austria) to facilitate access to vocational training for agency workers. More than 5 million is invested every year by these training funds in schemes specifically designed for agency workers. (Further reference to training funds is made in Chapter 5).

65 Adapting to change I 65 Figure 44 33% of agency workers in industry moved to agriculture, construction or services Sector transitions between March 29 and November 21 in France TRANSITION MATRIX SECTORS Employment sector March 29 Employment sector November 21 Agriculture Construction Industry Services/ Retail Agriculture 1 24% 22% 29% 25% Construction 7% 17% 12% Industry 2% 7% 67% 24% Services/Retail 6% 24% 7% 1. Low base 29 Note: 1775 Employed people interviewed in november 21 Source: BVA Training lies at the very core of the sector and is central to its role in meeting demand with supply in employment markets. The industry stays is intrinsically connected to the workplace and best placed to understand the changing needs of employers and employees, thereby enabling it to step in and train workers to meet these needs. By acting as an agent to workers it helps them to access the next assignment and ensure that they can transition easily to further employment. Vocational training for agency workers is demand driven, in unison with the labour market s need and organised in close cooperation with user companies with a short term and pragmatic approach catering especially well to lower skilled workers. As the data reveals, agency workers receive more training than fixed term workers and regularly undergo training to find new job opportunities (Figure 45). Due to the heavy representation of younger people in private employment services, 7% of agency workers undergoing training are younger than 35 whereas only 5% of permanent workers trained fall within this age bracket. 2 Private employment services go above and beyond other employers by providing constant skills training to ensure that their workers are equipped to meet the needs of employment markets. The correlation between acquired skills and employability stands more than ever and is a key indicator to avoid long bouts of unemployment and better transition to new employment opportunities. 2 STOOF April 21

66 66 I Adapting to change Figure 45 Agency workers receive more training than fixed term workers Netherlands example SHARE OF WORKERS UNDERGOING TRAINING TRAINING DIFFERENCES BETWEEN WORKERS % Fixed term workers in a given year +86% 13% +23% Temporary agency workers 16% Permanent employees Fixed term workers do not belong to a formal structure hence get less training benefits Agency workers are usually less qualified than permanent workers when starting Agency workers and permanent employees starting without qualification undergo the same amount of training Agency workers in training mainly hold intermediate positions and undergo training to find new job opportunities Agency workers often undergo longer training 7% of agency workers undergoing training are younger than 35 whereas only 5% of permanent workers trained are younger than 35 years Note: Students that simultaneously work as AW are excluded from this statistic Source: Trainingmonitor agency work sector Research commissioned by STOOF April 21 INCREASING SKILLS MOBILITY TO ADDRESS DEMOGRAPHIC CHANGES The coming decades will see an increasing global mismatch of talent and employment as aging populations in some parts of the globe are balanced by newly emerging economies in other regions. The northern hemisphere will experience a significant talent shortage with the USA needing an extra 25 million workers by 23 in order to sustain economic growth, while Europe will need 35 million extra workers by 25. Meanwhile, in many southern hemisphere countries, there will be workforce surpluses, with a projected 45 million new entrants in global job markets each year. This will be compounded by a talent gap in developing countries with untrained workers available (see Figure 46). Private employment services increase mobility in the labour market and in doing so help to meet the diverse needs of labour markets. Thanks to their global presence and network of branches all around the world, they can deliver geographic mobility and organise work migration in a secure way. Through their extensive knowledge of local labour markets, private employment services are able to source existing talent in almost any country and arrange for these workers to work abroad. They provide this service swiftly and if the workers do not have all the skill sets needed they will arrange for immediate training to bring them up-to-speed. The ability to provide mobility across geographies is well illustrated by the case of the private employment services in Poland supplying skilled workers to Norway (Figure 47). CHAPTER SUMMARY With training as a central core of the private employment services model, the sector ensures that workers have the skills needed to meet the job opportunities in the marketplace. With emerging technologies and the increasing need for a skilled workforce, the sector can play a crucial role in matching supply with demand and closing the skills gap across sectors and geographies

67 Adapting to change I 67 Figure 46 Increasing demand for matching labour needs Aging of population and talent gap foreseen as major shifts Increasing talent shortages occurring in the Northern hemisphere 35 million extra workers needed in Europe by 25 to fill employment gap Elderly dependency rate to double by 25 in most G7 and all BRIC countries 25 million extra workers needed in the US by 23 to sustain economic growth Increasing global mismatch 45 million new entrants in global job market annually. Most of them young and from developing countries Employability will continue to be a huge problem worldwide Only 25% of Indian and 2% of Russian professionals currently considered employable by multinationals Workforce surpluses in many Southern hemisphere countries Source: WEF 211, Global Talent Risk - Seven Responses, CEDEFOP, Eurostat, European Council Figure 47 PrES source and develop skills abroad to match demand Example: Private employment agency's campuses in Poland to supply Norwegian market Private employment agency's campuses in Poland Agency is operating two recruiting and training campuses in rural areas in Poland specifically to serve the Norwegian labour market Intensive screening and recruitment process takes place within these facilities Following training & support programs within the campuses reach from 2-5 months language courses over cultural and job specific training to administrative support regarding the assignment CONSTRUCTION WORKERS Situation The Norwegian market is characterized by low unemployment rates which leads to underrepresentation of different skill sets in the Norwegian labour force In contrast many rural areas in Poland are facing high unemployment and have a large population of skilled workforce especially in the construction environment PRE-SCHOOL TEACHERS Situation Until recently, about 6% of children in Norway got a place in one of the countries pre-school facilities The Norwegian government recently introduced a guarantee for every child to get access to such an institution This in turn lead to a significant lack in qualified pre-school teachers in Norway Results Through the facilities in Poland skilled workers are being identified, recruited and extensively trained (e.g. language) Workers receive further job specific training in Norway The overall involvement supports work mobility and perfectly matches different supply & demand situation across borders Results Through the campuses in Poland, qualified educational staff is being recruited to fill the gap in the Norwegian pre-school teaching environment Extensive training programs needed to cope with local requirements (language, knowledge of local culture, etc.) After first suspiciousness within the Norwegian population, this practice is now fully established and valued by all parties Source: Norwegian national federation (NHO Service), expert interviews, press research

68 68 Enabling I Adapting Adaption to change to Change Chapter 5 Private employment services deliver decent work Private employment services are often very valuable for workers in terms of the opportunities offered and the possibility to gain experience, John Martin, OECD Director for Employment, Labour and Social Affairs

69 Adapting to change I 69 Those forms of labour contractual arrangements which are not properly regulated or can easily be misused (e.g. bogus self-employment, civil contracts, subcontracting), can lead to low quality jobs and malpractice. By principle, flexibility provided by private employment services should be seen as an embodiment of decent work, far away from the debate on indecent or precarious work. In its Decent Work Agenda, the International Labour Organisation (ILO) identifies four strategic goals: creating decent and productive employment; promoting access to social protection systems; respect for core labour standards; stronger dialogue between the social partners. The assessment of these goals leads to the conclusion that appropriately regulated and organised private employment services contribute to decent work. Indeed when compared with other forms of external flexible work (fixed term contracts, on-call work, outsourcing, self-employment, undeclared work), agency work provides clear advantages. While the cited forms of labour relations allow for agreeable conditions to varying degrees, no other form of flexibility than agency work provides the same level of benefits to both organisations and workers than agency work. The unique nature of private employment services is related to their intermediary function in labour markets and the triangular relationship between the employee, the user organisation and the agency on which it is based. The triangular relationship is a widely accepted form of employment relationship and is officially recognised by the EU with Directive 28/14/EC on temporary agency work as well as by the ILO with its Convention on private employment agencies (n 181). In this relationship, the private employment agency remains the employer of the agency worker, who is place at work in the user company under the supervision of the user company. As a consequence: The private employment services industry is a fully fledged sector of the economy, being able to negotiate employment and working conditions for both its permanent and temporary workers; The private employment services industry is committed to social dialogue and collective bargaining as a way to regulate the sector; Private employment services interests are heavily aligned with those of the workers; they have a common interest in developing modern social protection schemes that fit with the specific nature of agency work; The private employment services industry is calling for appropriate regulation to be adopted for its sector (in countries where such regulation does not exist yet) and keeps on promoting enhanced quality standards as a way to fight against rogue and unethical agencies that harm the image of the sector and lead to unfair competition and social dumping.

70 7 I Adapting to change AN INDUSTRY COMMITTED TO SOCIAL DIALOGUE The private employment services industry is an economic sector on its own thanks to the triangular relationship that exists between an agency, a user-company and a worker (who is the employee of the agency). As such, the industry differentiates itself from other forms of employment and is recognised as a fully fledged sector of the economy by international regulatory organisations such as the International Labour Organisation (ILO) as well as the European Union (EU). At global level, the ILO has adopted a dedicated Convention (n 181) on private employment agencies and a supplementary Recommendation (n 188). At the EU level, a Directive on temporary agency work was adopted in 28, with the deadline for implementation set at December 211. In addition, the European Commission has officially recognised agency work as a sector on its own: the industry formed a sectoral social dialogue committee with its trade union counterpart in 1998 and is currently one of the 4 sectoral social dialogue committees operating at EU level. Because agency workers are the employees of the private employment services (whether temporary or permanent), the sector is in a position to negotiate their employment and working conditions. Where relevant, these employment and working conditions are negotiated with trade unions as the agency workers representatives. Therefore, as the only form of flexible work organised as a sector on its own, the industry itself has concluded a large number of collective labour agreements with trade unions at national level to advance the rights of agency workers, especially in Europe (see Figure 48). In Japan, the Japanese Staffing Services Association (JAS- SA) signed a joint declaration with Rengo, the Japanese trade union confederation in 21 on how to improve the treatment of agency workers and promote fair practices within the industry. CASE STUDY 1: SOCIAL DIALOGUE IN ACTION IN SOUTH AFRICA The South African Confederation of Associations in the Private Employment Sector (CAPES), has entered into a Memorandum of Understanding (MOU) with The Federation of Unions of South Africa (FEDUSA), the second largest trade union federation in South Africa. The MOU addresses the need to understand the barriers to social dialogue within the agency worker environment. Part of this pilot included access to union membership for more than 8 agency workers who all receive full benefits of membership for 12 months paid for by CAPES. The MOU also created a dedicated call centre for agency workers, that cater for agency workers across the country who require advice and assistance about their rights. Social partners continue to meet on a monthly basis to find ways to engage (agency and union) effectively and to find solutions to the issues raised by agency workers through the call centre.

71 Adapting to change I 71 Figure 48 A sector committed to social dialogue Countries/ EUROPE AW sector AW company (own staff) User companies Countries/ Rest of World Crosssectoral Crosssectoral AW sector AW company User companies Austria Belgium Denmark Finland France Argentina Australia Brazil Chile Germany Colombia Ireland Japan 4 ( ) Italy Luxembourg Macedonia Netherlands Norway New Zealand Mexico Peru South Africa Poland Portugal Spain Sweden Switzerland UK ( ) Notes 1) in the UK, cross-sectoral level refers to a single agreement between CBI and TUC rather than to collective bargaining as such. 2) Collective agreements are not allowed for agency workers (2.123 law, art. 34 & 35). 3) There are no CLAs in these countries 4) in Japan, AW sector refers to a single agreement between Rengo and JASSA rather than to collective bargaining as such. Source: Eurofound & Ciett These collective agreements, leading to higher levels of protection for the agency workers, can include better access to vocational training, complimentary health insurance or pension schemes, health & safety at work and extra social benefits. They can be negotiated at crosssectoral level (between national social partners), sectoral level (between social partners of the agency work industry), agency work level (between a private employment agency and trade unions established in the premises) or at user company level. In several European countries, jointly managed bodies have been established by the industry s social partners to improve the employment and working conditions of agency workers (see Figure 49).

72 72 I Adapting to change Figure 49 Bipartite bodies in Europe for agency work Training Pensions Social benefits Health & Safety Compliance Austria Belgium France Italy Luxembourg Netherlands Spain In countries like France (Figure 5), the Netherlands (Figure 51), Italy (Figure 52) and Belgium (Figure 53), these bipartite funds deliver a full range of services and benefits to improve the security of agency workers. Figure 5 Social partners' bipartite bodies in France for the agency work industry TRAINING (FAF-TT) Budget = 15 million Mission= facilitate access to training for agency workers Nbr agency workers concerned = 4,7 in 21 SOCIAL FUND (FASTT) Inclusion ( FPE-TT ) Budget = 44.8 million in 21 Mission: Providing additional benefits to agency workers regarding access to housing, credit, childcare, car renting, complementary health insurance... Nbr agency workers = 129, in 21 Budget = 15.5 million Mission= facilitate professional inclusion of agency workers Nbr agency workers concerned = 4,6 in 21 RESEARCH (OME) Budget = 7, Mission = To commission surveys in order to increase the understanding of the AW industry COMPLIANCE (CPPNTT) Mission = to inform about and to stimulate compliance with existing legislation and CLAs for AW WELFARE & PENSION (REUNICA) Mission= To provide welfare and complemetary pension schemes to agency workers Nbr of affiliated agency workers = 5, in 29 HEALTH & SAFETY (CPNSST) Mission= To provide complementary instruments and information to agency workers on health & safety

73 Adapting to change I 73 Figure 51 Social partners' bipartite bodies in the Netherlands for the Agency Work industry TRAINING (STOOF) Budget = 2.6 million Mission= Professionalise vocational training and career development for employees & improve mobility of agency workers Nbr agency workers concerned = 23,12 in 21 SOCIAL FUND (SFU) Budget = 5 million (.2% from wages) Mission: Providing additional benefits to agency workers regarding access to housing, credit, childcare, holidays... Nbr agency workers concerned = 168,271 (active) and 466,39 (inactive) in 21 CLA POLICE (SNCU) Budget = 2,1 million Mission = to stimulate compliance with existing CLAs for AW through enforcement as well as advice and educate on the application of the CLAs HEALTH & SAFETY (STAF) Budget = 9, Mission= provide complementary instruments and information to agency workers on health & safety Nbr of agency workers = 211, PENSION (STIPP) Budget = 17 million Mission= provide complementary pension benefits to agency workers Nbr agency workers concerned = 66, (including 16, still working for an agency) SELF-REGULATION (SNA) Mission= Deliver quality certificates to TWAs and carry out compliance audits 2,4 agencies with certificate 4,7 inspections carried out in 21 and 322 companies removed Figure 52 Social partners' bipartite bodies in Italy for the Agency Work industry Budget = 11 million Mission= facilitate access to training for agency workers Nbr agency workers concerned = 138, in 21 TRAINING FORMATEMP Budget = 7 million Mission: Providing additional benefits to agency workers (inclusion, health, health and safety, access to credit, childcare,...) support to the management of social dialogue and carry out research on TAW Nbr agency workers concerned = in 21 SOCIAL FUND (EBITEMP) Budget = 13 million Mission= provide complementary pension benefits to agency workers PENSION (FONTEMP)

74 74 I Adapting to change Figure 53 Social partners' bipartite bodies in Belgium for the Agency Work industry TRAINING (VFU-FFI) Budget = 8.6 million (.4% total wages) Mission= facilitate access to training for agency workers Nbr agency workers concerned = 25,116 in 21 TRAINING SERVICES CHEQUES (FORM TS-VORMDC) Budget = 7.6 million Mission= facilitate access to training for workers employed through services cheques Nbr workers concerned = 12, in 21 SOCIAL FUND (SFU-FSI) Budget = 2 million Mission: Providing additional social benefits to agency workers regarding extra pay (end-of-year bonuses) Nbr agency workers concerned = 12, in 21 HEALTH & SAFETY (PI) Budget = 82, Mission= provide complementary instruments and information to agency workers on health & safety Nbr of TAW staff trained= 3 in 21 Through social dialogue, employers and trade unions of the private employment services industry work together to deliver decent jobs, high levels of social protection and a well trained workforce. AN INDUSTRY DRIVING SOCIAL INNOVATION The three-cornered model of agency, user-company and worker that defines private employment services is a driver of social innovation as it provides each party with ownership and a clear role. The industry has contributed to setting up new ways to secure social protection for workers under labour relations that are different from permanent contracts. In several countries, the industry has developed schemes to ensure the portability and transferability of the agency workers rights (health insurance, complimentary pension schemes, and training). Indeed, the interests of private employment services are intrinsically aligned with those of its workers because as the industry will only benefit when its workers are employed in safe, secure and fair working environments. With the recognition of the value of the human capital, private employment agencies are looking to expand their investments in training and skills development of their workers in order to maintain and increase their employability. In recognition of its capacity for social innovation, public authorities have involved the industry in organising new forms of labour contractual arrangements such as the Portage Salarial system

75 Adapting to change I 75 in France (providing an administrative platform for independent contractors see Figure 54) and the voucher system in Belgium (for workers providing individual services in private households see Figure 55). In both these cases the industry s expertise and knowledge has been put to best use to develop a new form of employment relationship and to fight illegal work. Figure 54 PrES industry driving social innovation France: In 21, about 2' independent contractors worked under "portage salarial" scheme 1. The independent contractor finds his own projects and negotiates his fees Despite the consulting nature of his job, the contractor has a employment status and all related benefits The contractor can focus on his core tasks and outsource administrative burdens Gives the opportunity to try a new activity before starting as a freelance CLIENT The client pays fees to the agency as agreed by all three parties Flexible management of workforce by hiring external contractors Decrease administrative costs and social charges INDEPENDENT CONTRACTOR 3 AGENCY 3. The agency pays a regular salary for the length of the contract Agency takes care of all administrative matters Agency can coach, helps to network and finds new clients Agency can work together with the contractor to draft proposals and follow up with potential clients 1. Industry estimate Source: L intermédiation dans les relations d emploi au travers des exemples du portage salarial et de l intérim hautement qualifié, DARES, 25 The French portable salary scheme which took place in 21 is a key example of social innovation enabled by the industry. Some 2, independent contractors worked under the innovative scheme based on the original three-party model which enabled them to find their own projects and negotiate their fees while being able to outsource the administration and having the security of the employment status that enabled them to concentrate on the core task. The client continued to pay fees to the agency as agreed by all parties while enjoying a flexible employment solution that brought few administrative costs and social charges. The agency, as negotiator of the contract, took care of all administrative matters and maintained contact and relationships with both other parties. Private employment services also played a central role in the innovative voucher system developed in Belgium for self employed cleaning workers. The system allows users to buy up to 5 vouchers per year which are tax deductable and can be used to hire workers to clean their home.

76 76 I Adapting to change Figure 55 A voucher system for self employed cleaning workers PrES play a central role in this innovative system created and implemented in Belgium PROCESS CITIZEN CAN BUY 5 VOUCHERS PER YEAR 2 TO USE FOR HIRING WORKERS AGENCY PROVIDES WORKERS, TAKES CARE OF ADMINISTRATIVE TASKS AND CONTROLS COMPLIANCE WORKERS PROVIDE SERVICE AND CONVERT THE VOUCHERS INTO MONEY (INCLUDING A GOVERNMENT SUBSIDY) USER AGENCY WORKER Advantages for the user Fulfil a need of users Tax deductible vouchers Trust and transparency provided by agency intermediary without administrative hassle Diminution of risks (legal, social) Role of PrES 1 PrES do all the administrative handling and employ the workers Through extensive experience and network, PrES ideally positioned to play the agency role PrES companies recognition bring trust and reliability to the system Advantages for the worker The worker is hired by the agency and get an official working contract Transparent salary Socially protected (i.e insurance, retirement benefits,...) 1: 7% of workers go through commercial agencies dominated by PrES. The other 3% go through social action centres, communal centres, physical persons and local PES 2: Except certain groups who can get up to 2 vouchers per year (single parent families, handicapped persons,...) Source: Onem, Federgon, 21 Figure 56 The voucher system is a great success in Belgium 97 million vouchers reimbursed in 21 OUTCOMES OF THE PROGRAM GROWTH IN DEMAND AND USERS UNTIL ,95 active workers in 21 2,499 authorized agencies in million vouchers reimbursed in 21 Reduce unemployment and provide stepping stone to permanent employment Avoid illegal labour and abuses 67% of users were using illegal labour before this system existed # of vouchers reimbursed (M) # of users (') % of Belgian active population The government is planning to widen this system to other activities than cleaning but at a controlled pace 1: 7% of workers go through commercial agencies dominated by PrES. The other 3% are social action centres, communal centres, physical persons and local PES Source: Onem, Federgon, 21

77 Adapting to change I 77 The agency handles all the administration and matches user with worker and the worker gets an official working contract, a transparent salary and a range of social protection benefits including insurance and pension. The system has been an astounding success with 97 million vouchers reimbursed in 21. It has reduced unemployment by employing 143,95 active workers in 21 and brought workers out of the black economy and into the system where 67% were previously working illegally. (Figure 56) A SECTOR PROMOTING THE NEED FOR PROPER REGULATION AND ENHANCED QUALITY STANDARDS As responsible employers, the reputable private employment agencies call for proper regulation of their services to be adopted and also promote enhanced quality standards. They commit themselves to a transparent and sound governance of the industry, with a global confederation (Ciett) and regional ones (Eurociett, Northern and Southern AsiaCiett, CLETT&A, North America, Africa and Near East) representing the interests of the sector. Ciett works closely with the ILO, the International Organisation of Employers and global trade unions to promote further ratification of Convention n 181 on private employment agencies. Ciett also adopted a Code of Conduct many years ago to which all of its members adhere. In addition, the industry has developed specific tools to ensure that quality standards and regulation (whether by law or collective bargaining) are being enforced: In France (CPPNTT), Belgium (CNT) and the Netherlands (SNCU and SNA), bipartite bodies are in place to monitor and ensure compliance with existing regulation on agency work. In Belgium and Portugal, an Ombudsman office has been established to deal with complaints from agency workers and to look for remedies. In Sweden and the Netherlands, where no licensing schemes exist, a certification system is in place to check conditions under which private employment agencies operate. Most national associations of private employment services have adopted their own code of conduct, code of practices or quality norms (see Case Study 1). CASE STUDY 1: SELF REGULATION IN THE UNITED KINGDOM The Recruitment and Employment Confederation in the UK has a code of professional practice to ensure standards of quality in the industry. It has used a self-assessment questionnaire since 27 to monitor compliance and leading to a major review of all compliance activity in 211. Internal inspectors conduct regular inspections to ensure that members meet standards and any infraction is required to be rectified within six weeks if the organisation is to retain its place in the REC online directory.

78 78 I Adapting to change AGENCY WORK PROVIDES CLEAR ADVANTAGES OVER OTHER FORMS OF FLEXIBILITY Figure 57 Agency work provides clear advantages over other forms of flexibility Higher flexibility and faster hiring mentioned compared to fixed-term and independent workers WHERE DO YOU SEE THE SPECIFIC ADVANTAGES OF AGENCY WORK COMPARED TO FIXED-TERM CONTRACTS? WHERE DO YOU SEE THE SPECIFIC ADVANTAGES OF AGENCY WORK COMPARED TO SELF-EMPLOYED/INDEPENDENT CONTRACTOR? Higher flexibility 76 Faster hiring process 37 Faster hiring process Cheaper solution Higher flexibility Better regulatory compliance/ legal security Larger portfolio of skills available 13 Cheaper solution 27 Better regulatory compliance/ legal security Other 8 8 Larger portfolio of skills available Higher quality of workers 1 19 Higher quality of workers 6 Other % of respondents agreeing to the statement (total = 62) % of respondents agreeing to the statement (total = 62) Source: User organization survey, BCG analysis Contracts such as on-call work, outsourcing, fixed-term contracts and self-employment can all be used to provide flexibility in the marketplace and have a role to play. They also provide benefits to varying degrees but no other form of flexibility provides the same level of benefits to both employers and workers as agency work: Fixed term contracts provide no prospect of ongoing work or assistance in finding another job and offer limited training opportunities; On-call work happens at short notice with high uncertainty and little protection or support in finding future work and it makes it difficult to secure other work to plug the gaps. For user organisations on-call work provides no support to manage the search and administrative processes; Outsourcing provides limited career building opportunities or relationship with the user organisation although it does deliver the same benefits as for full time employees. For user organisations there is only limited contact with or control over the employee;

79 Adapting to change I 79 Self-employment offers no access to social benefits and training provided by agency work and little access to clients or prospects, and for companies it can raise compliance concerns and bring lack of quality control, especially for lower skilled workers; Illegal work is extremely precarious and offers no access to benefits or protection and no legal status. Employers using this type of work are clearly operating outside the law and opening themselves up to a range of risks. When questioned about the added value of agency work, user organisations make reference to both a higher degree of flexibility (76%) and a much faster hiring process (47%) compared with fixed term contracts. They cited similar advantages over independent and self-employed contracts, also pointing out better regulatory compliance (35%) and the larger portfolio of skills available (19%) see Figure AGENCY WORKERS HIGH LEVEL OF SATISFACTION REFLECTS DECENT WORKING CONDITIONS While private employment services meet the needs of user companies, evidence shows that they also suit the aspirations of workers too. High levels of satisfaction are recorded among agency workers and it data shows that the stepping-stone function provided by the sector meets the needs of a growing number of people. The private employment industry also manages the task of finding work. It has a job already lined up when the current position ends and vows to ensure that the worker remains in employment throughout. It identifies where skill-sets will be needed in the future and provides training and skills enhancement to equip the workers to carry out the jobs identified. This ensures that workers keep their skills up-to-date and increases the worker s chances of finding ongoing employment. Private employment services act as career agents to the workers and provide them with guidance on how best to start and build their professional life. In many countries, agency work is today recognised as a lifestyle choice and agency workers show high levels of satisfaction with the flexibility and work/life balance that agency work affords them. Research from the French bipartite institute L Observatoire des Métiers et de l Emploi showed that in France over 9% claimed to be satisfied with both the interest of the work and the quality of the relationship with the agency, and 89% satisfied with the work/life balance they had achieved (Figure 58). In Belgium, among senior workers the satisfaction levels are equally high with 91% of senior agency workers saying they would recommend agency work to a person of their age (Figure 59). 22 As the research reveals, a real irony lies in the seeming mismatch between the perceptions of those working in the agency work industry and those observing it. While 91% of people employed in agency work in France have a positive impression of the work, only 69% of workers employed in the private sector have a similar view, with a significant percentage being wary of 21 Source: BCG Survey L Observatoire des Métiers et de l Emploi - April 211

80 8 I Adapting to change Figure 58 Satisfaction among agency workers is very high HOW SATISFIED ARE YOU OF YOU AGENCY WORK EXPERIENCE WITH REGARD TO % 91% 89% 81% 79% 2...work interest...quality of the relationship with your temporary agency...your work life balance...time lag between projects...your salary Does not know Not satisfied Not quite satisfied Quite satisfied Very satisfied Source: Regards croisés sur l intérim, l Observatoire des Métiers et de l Emploi, April 211 Figure 59 Agency work serves the needs of older workers well Example: Belgium 1 HOW SATISFIED WIR YOUR AW EXPERIENCE ARE YOU? % 82% 84% 93% years old 5-53 years old years old 58-9 years old Very unsatisfied Unsatisfied Not satisfied nor unsatisfied Satisfied Very satisfied 91% of senior agency workers would recommend agency work to a person of their age Source: Les travailleurs intérimaires âgés de plus de 45 ans Federgon and IDEA consult July 24

81 Adapting to change I 81 agency work. This statistical anomaly can largely be explained by misconceptions surrounding the industry and its workers. The industry embraces such data as an invitation to bring greater understanding to governments, companies and citizens as to the role of the private employment services in well functioning labour markets and the place for agency work in supporting organisations in times of structural change. CHAPTER SUMMARY Agency work is the most secure form of external flexible work and is appreciated by both those who work in it and the companies that use it to manage their staffing needs. Private employment services provide decent work and are committed to negotiate with trade unions to find innovative solutions that meet the needs of workers, organisations and society.

82 82 I Adapting to change Chapter 6 Efficient labour markets need relevant regulation of private employment services As a specific service provided by private employment agencies, if regulated appropriately, temporary agency work contributes to improved functioning of labour markets, fulfils specific needs for both enterprises and workers, and aims at complementing other forms of employment Points of Consensus of ILO Workshop to Promote Ratification of the Private Employment Agencies Convention (29 )23 23 WPEAC-Points of Consensus [ ]-En.doc

83 Adapting to change I 83 To maximise the benefits of private employment services in delivering greater labour market efficiency, an appropriate regulatory framework must be in place. Private employment services are already a highly regulated industry in many markets around the world, with in some cases a mix of legislation, collective labour agreements and self-regulation 24. In some other countries, the industry is still at an early stage of development, and proper regulation needs to be adopted in order ensure all rights are enforced and to gain social acceptance for this form of work (Figure 6). Figure 6 Agency work markets tend to go through stages of development THE TIMELINE EVOLUTION OF AGENCY WORK ACCEPTANCE Social development Illegality grey zone Legal recognition Social tolerance Normative acceptance Societal acceptance Full recognition Hostility and rejection of this new form of work relationship Containment of an unpopular industry, as a last resort HR provider AW accepted by trade unions, if properly regulated Useful tool for labour market policies AW as an acceptable work alternative AW as a desirable choice of work Regulatory development No regulation Coercitive regulation CLAs in addition to existing law Lifting restrictions Social partners to define regulation Appropriate regulation Source: Ciett RELEVANT REGULATION ON PRIVATE EMPLOYMENT SERVICES SHOULD BALANCE FLEXIBILITY WITH SECURITY The sector itself recognises that an appropriate and balanced regulatory framework is an essential pre-requisite for the acceptance and the sound development of the industry. For this reason the industry is very supportive of international instruments that provide guidelines to regulate private employment services, such as the International Labour Organisation s Convention 181 on private employment agencies and its accompanying Recommendation n 188. Ciett is working jointly with all relevant stakeholders (ILO Office in Geneva, the International Organisation of Employers and global trade unions) to promote further ratification of Convention 181. At EU level, Eurociett is fully supportive of Directive 28/14/EC on temporary agency work that has established the principle of equal treatment between an agency worker and a permanent worker in the user company and a clear recognition of the role social partners can play in regulating the sector through collective labour agreements. 24 Cf. Eurofound report on Temporary agency work and collective bargaining in the EU, 28

84 84 I Adapting to change In this context, achieving an appropriate balance between flexibility and security is key if the potential of the industry to increase labour market efficiency is to be realised for the benefit of all actors involved. An effective regulatory system needs to maintain flexibility for all parties enabling companies to respond quickly to changing economic circumstances and allowing workers to achieve the work/life balance they desire. It also needs to provide a level of security for both parties: companies require legal security when contracting flexible work and access to skills while workers demand work security, continuity of rights between assignments and the possibility to maintain and develop employability. In conjunction with Ciett, The Boston Consulting Group developed three key instruments in order to come up with recommendations on the correct level of regulation, drawing on a Regulatory Efficiency Index on private employment services, a Labour Market Efficiency Index and a Country Cluster analysis. PRIVATE EMPLOYMENT SERVICES ONLY CONTRIBUTE TO BETTER FUNCTIONING LABOUR MARKETS WHEN APPROPRIATELY REGULATED To assess the regulatory environment and the different areas of private employment services development, the Boston Consulting Group and Ciett devised the Private Employment Services Regulatory Efficiency Index aimed at assessing the degrees of flexibility to operate and security for workers. The outcome of the index is calculated using 1 dimensions of development, each further divided into specific criteria to assess the level of development of each indicator in the country. Each dimension can be awarded a maximum of 1 points = least developed, 1= best stage of development - and adjustments and weighting of the criteria are made within each dimension (see Figure 61). A These three dimensions relate to the Right of Establishment, addressing legal recognition, limitation on services and any unjustified restrictions. B These two address the Right to provide services and Contract, addressing the ability to offer full the range of contracts and the removal of restrictions on private employment services. C Two further cover the Right to negotiate and Social protection, addressing agency work as a sector on its own and covering the sector s ability to implement social protection for agency workers. D The final three concern the Right to contribute to labour market policies, addressing access to training, public/private partnership between employment services and the commitment to fighting illegal practices.

85 Adapting to change I 85 Figure 61 Key dimensions of PrES Regulatory Efficiency Index 211 Index assesses degrees of flexibility to operate and security for workers A Right of establishment 1. Legal recognition of the triangular work relationship in all countries 2. No limitation of services to be delivered (real private employment agencies) 3. No unjustified and disproportionate barriers to enter the market B Right to provide services and to contract 4. Ability to offer the full range of labour contracts (no limitations or restrictions) 5. Removal of key restrictions on the use of AW 1 A B C Right to negotiate & social protection 6. AW recognized as a sector on its own 7. Ability to implement social protection for agency workers that can be capitalized and portable C D D Right to contribute to labour market policies 8. Access to training for agency workers to be as broad and easy as possible 9. Existence of public-private partnerships in terms of employment services 1. PrES are committed and involved in the fight against illegal practices and unethical agencies 1. Sectoral bans, caps on number of agency workers, reasons of use, maximum length of assignment, obligations to consult trade unions, renewals Source: Ciett, BCG analysis The results of the Regulatory Efficiency Index show significant differences between countries (Figure 62): Countries with no specific or outdated regulation of agency work rank poorly in terms of Regulatory Efficiency Index (such as Turkey, Argentina, Chile, Greece, Luxembourg, Spain) while more mature markets in which regulation of private employment services has been developed and adjusted regularly to the needs of the labour markets show top scores (e.g. the Netherlands, Sweden, USA, Denmark, UK, Australia, Belgium, Germany, France). The research provides strong evidence that markets can only operate truly efficiently if relevant and up-to-date regulation is in place, including a key role to play for social partners in balancing flexibility with security. A particular correlation between the Regulatory Efficiency Index score and agency work penetration can be observed (Figure 63). Countries where private employment services are regulated in the most efficient way foster those regulatory conditions where the industry is the most developed and can contribute to better functioning labour markets.

86 86 I Adapting to change Figure 62 Results of Regulatory Efficiency Index Significant differences between countries regarding index score PrES Regulatory Index score (-1) Netherlands Sweden United States Denmark United Kingdom Australia Belgium Right to: Contribute to labour market policies Negotiate and social protection Provide services and to contract Establishment New Zealand Norway Germany France Austria Japan Poland South Africa Italy Hungary Mexico Switzerland Ireland Spain Slovenia Luxembourg Lithuania Czech Republic Greece Chile Argentina Estonia Turkey Ø 65 Note: Further clarification outstanding for Eastern European countries Source: National federations, BCG analysis Figure 63 Right level of regulation allows agency work to contribute to labour market Clear correlation between AW penetration and Regulatory Efficiency Index score AW penetration rate 21 1 (%) 4 UK 2 France Germany Belgium USA Netherlands R 2 =.42 1 Czech Republic Chile Argentina Greece 4 5 Switzerland Spain Slovenia 6 Japan Austria Italy Norway Hungary Poland 7 8 Sweden Denmark 9 1 Legislator driven Social dialogue - CE Social dialogue - Nordics Social dialogue - Asia Emerging markets Market driven PrES Regulatory Efficiency Index High correlation also within clusters representing different stages of maturity 1. Only 29 data available for Norway, Hungary, Slovenia, Greece, Austria, Czech Republic, Chile, Denmark Note: No penetration rates available for NZ, MX, TR, AU, EE and LT; Not included in correlation due to exceptional situation or data issues: ZA, IE and LU Source: National federations, BCG analysis

87 Adapting to change I 87 PRIVATE EMPLOYMENT SERVICES OPERATE IN SIX TYPES OF ENVIRONMENT Private employment services are inextricably linked to the nature of labour markets and these can be complex and vary from country to country. Clustering countries by their political and social systems, the impact of regulatory regimes and socio-economic and even the historic social dynamics, enables specific areas for improvement to be identified for each. The Cluster groupings are based on three dimensions: Market dynamics evaluating the social and economic system in the country, how labour markets perform historically and today, and the value the economy places on the labour market; Industry development when private employment services were officially recognised, how they have developed and the stage reached today; and Regulatory environment the regulatory environment for private employment services and how they perform on the Regulatory Efficiency Index and why. Based on these dimensions, four main types of environments were identified: 1. Market driven Countries where private employment services and labour laws are relatively liberalised and corporations enjoy a high degree of freedom in determining the most suitable form of employment. Self-regulation also plays an important role in this cluster. 2. Social dialogue based Countries where private employment services and labour laws are strongly influenced by negotiations between the social partners. In this environment social partners have the freedom to determine rules by negotiation. 3. Legislator driven Countries where private employment services and labour law are mainly determined by government bodies and legislation both at national and regional level, with formal legislation comprising the main basis for labour law. 4. Emerging Countries where private employment services are still young and labour laws and legislation are still being developed. Legislation is evolving with significant informal work in some cases. Three important subgroups were identified within the social dialogue is based environment creating a total of six types of country cluster in which private employment services operate (Figure 64). The market driven environments, based on the Anglo-Saxon model that includes the UK, USA, Australia and New Zealand have allowed rapid development of agency work and an open regulatory environment with liberal economies that have tended to favour flexibility over security. The social dialogue based model can be broken down into three further subsets: West European countries including Austria, Germany, the Netherlands and Switzerland where the private employment sector is mature and above average penetration, flexibility and security are balanced and where labour markets are largely regulated by collective labour agreements between the social partners. Nordic countries including Denmark, Finland, Norway and Sweden where private employment services development is slow and the unique Nordic social economic system is at play. The Asian model characterised by Japan - where the economy is liberal but a high value is placed on security and social acceptance.

88 88 I Adapting to change Figure 64 The six types of environment where PrES operate Important sub-groups based on nuances of social systems MARKET TYPE COUNTRIES CLUSTER CHARACTERISTICS 1 Market driven Europe Non-Europe UK US, Australia, New Zealand Rapid AW development, with appreciable drop-off in the crisis Open regulatory environment with limited restrictions Liberal economies favoring flexibility over security Social dialogue based 2 3 Western Europe Nordics Netherlands Switzerland, Austria, Germany Sweden, Norway, Denmark, Finland Significant degree of AW penetration in relatively mature markets Moderately regulated, varying balances of flexibility and security Labor market organized and regulated by collective agreements between social partners Historically low AW penetration and slow industry development Unique Nordic social and economic system 5 6 Legislator driven Emerging markets 4 Asia Western Europe Mediterranean Eastern Europe Lat Am Asia Japan France, Belgium, Luxembourg Italy, Greece, Spain, Portugal Eastern Europe Latin America India, China Generally liberal economies but high value on security and social acceptance challenges Penetration depending on level of industry development, ranging from below to above average Highly regulated, weighted towards job security over flexibility Historically labor markets with high unemployment relative to Social dialogue peers Nascent industries with AW legally recognized only recently Regulatory policies still in development Economic policies and market dynamics still evolving The legislator driven model, characterised by countries in Western Europe and the Mediterranean where average agency work penetration is low with a focus on job security over flexibility and historically high unemployment compared with countries operating within the social dialogue model. The Emerging Markets model could be seen in countries across Europe, Asia and Latin America and was characterised by a very recent recognition of private employment agencies and still evolving regulatory policies as well as economic and market dynamics. LABOUR MARKET EFFICIENCY IS RELATED TO THE LEVEL OF DEVELOPMENT OF PRIVATE EMPLOYMENT SERVICES To assess overall efficiency of labour markets, the Boston Consulting Group and Ciett jointly developed the Labour Market Efficiency Index. The index rankings are based on 6 criteria calculated for each country: overall employment rate (% working age population 15-64), employment rate 15-24, (% population15-24), Employment rate (% population 55-64), annual hours worked (per person employed), labour participation rate (% of working age population) and unemployment rate (% of labour force).

89 Adapting to change I 89 As the data plotted by the Labour Market Efficiency Index demonstrates, the countries showing higher scores of labour market efficiency are the ones where the private employment services industry has been able to operate for many years (with the notable exception of France). By contrast, countries in which the sector has been opened only recently (e.g. Eastern Europe) or is still not appropriately regulated (e.g. Mexico, Luxembourg, Spain, Portugal) score at lower levels. Figure 65 Labour market efficiency of key countries KEY DATA INPUTS Employment rate Employment rate Employment rate Annual hours worked labour participation rate Unemployment rate (Based onbusinesseurope reform barometer) labour market index score Switzerland 1.3 New Zealand.9 Norway.8 Denmark.8 Australia.7.7 LABOUR MARKET EFFICIENCY INDEX RANKINGS Netherlands Canada.5 Japan.5 Sweden.5 UK.4 South Korea.3.3 Mean Austria USA.2 Finland.1 Germany.1 Czech Republic -.1 Mexico Slovenia Portugal -.2 Greece -.4 Luxembourg -.4 Ireland -.5 France Poland Belgium -.9 Slovakia Italy Spain Chile -.9 Hungary -1. Source: Eurostat; OECD; BusinessEurope Spring 211 Reform Barometer As a next analytical step, when the country clusters are mapped against the Labour Market Efficiency Index, it becomes apparent that labour markets perform differently based on the characteristics of the environment (Figure 66 & 67). The market driven and social dialogue based clusters consistently perform better and display greater efficiency than those operating within a legislator driven environment (in part due to outdated limitations on services and entry-barriers to entry that the system places on private employment services as well as the lower capability of social partners to define the appropriate level of regulation). Countries in the Legislator driven cluster usually place a low value on flexibility and are not able to deliver high levels of efficiency despite above average private employment services penetration. Indeed, restrictive labour markets with centralised policymaking are more likely to place a stigma around temporary work and publics will have a generally low understanding of its advantages and added value. These markets may also typically have high unemployment among young and disadvantaged groups and relatively high levels of undeclared work. The lack of full

90 9 I Adapting to change Figure 66 Labour market performance is related to country clusters labour Market Efficiency Index Switzerland 1.3 New Zealand.9 Norway.8 Denmark.8 Australia.7 Netherlands.7 Canada.5 Japan.5 Sweden.5 UK.4 Austria.3 USA.2 Finland.1 Germany.1 Mean Czech Republic -.1 Mexico -.1 Slovenia -.2 Portugal -.2 Greece -.4 Luxembourg -.4 France -.6 Poland Belgium Market driven Social dialogue based Legislator driven Social dialogue based - Nordics Emerging markets Slovakia -.9 Italy -.9 Spain -.9 Chile -.9 Hungary See appendix for methodology discussion Source: OECD, Eurostat Figure 67 The different clusters can be distinctively mapped Different combinations of agency work penetration and Labour Market Efficiency Index AW Penetration (%) 4 3 Market driven (Europe) Average Legislator driven 2 Social dialogue based (Central Europe, Asia) Market driven (USA,ANZ) Emerging markets 1 Social dialogue based (Nordics) Labor Market Efficiency Index Source: Eurostat; OECD; CIETT; BCG analysis

91 Adapting to change I 91 acceptance of private employment services hinders the use of their range of services to bring people into the workplace and maximise labour market participation and leads to the assumption that segmentation and even two-tier systems are likely to emerge. Emerging markets also demonstrate higher levels of inefficiency as their legal frameworks and social systems are still in development and do not enable the private employment services to play a role. These markets, which historically have had low worker protection and a high level of precariousness and informal work, have the opportunity to develop the private employment services sector alongside their social and political systems in order to foster inclusive labour markets and facilitate adaptation to change. As these markets often also have a low skills base, they could additionally benefit from the ongoing training and upskilling offered by private employment services. AGENCY WORK HAS DEVELOPED DIFFERENTLY IN EACH MARKET CLUSTER A better understanding of how these market clusters emerged can be obtained by exploring how agency work has developed in each of the clusters (Figure 68). Much of the development is dependent on the specificities of the country cluster and the social economic system that the market operates in. Figure 68 Level of industry development different within country clusters DATE OF FIRST SECTOR REGULATION AND AGENCY WORK PENETRATION, EUROPE AW Penetration (%) 1 4 R 2 =.46 UK Market driven Social dialogue based Legislator driven Social dialogue - Nordics Emerging 3 Early adopters encouraged AW development and contribution to labourmarkets Netherlands 2 1 Slovakia Czech Republic / Hungary Poland Slovenia Sweden Finland Italy Spain Austria Portugal Switzerland Belgium Norway France Germany Average Denmark Restrictive condition had lasting impact on growth 25 Greece figures excepting Spain, Luxembourg and Portugal (28) Source: CIETT Year of first regulation

92 92 I Adapting to change In the market driven UK, private employment services have been allowed to flourish and provide a wide range of services. In the Netherlands, private employment services have blossomed due to their historical presence, a wish to fight undeclared work and social value being placed on flexible forms of employment. In the Nordics, private employment services grew slowly but were present and largely self-regulated or part of other collective bargaining arrangements. The legislation cluster reveals two very different groups with the western European countries recognising private employment services relatively early and seeing steady development while the Mediterranean markets were late to recognise services compared with the rest of Europe, the industry still having limited reach. The evidence shows that those markets which were early adopters of private employment services have achieved higher levels of penetration. However, time is not the only relevant factor underlining the penetration rate of the industry in a country with the impact of the efficiency and the enforcement of the regulation also needing to be considered. LABOUR MARKET EFFECTIVENESS GREATLY INFLUENCES COMPETITIVENESS The cluster groupings show up other metrics that unlock the rationale regarding the optimal level of regulation of private employment services to achieve labour market efficiency. When the Labour Market Efficiency Index is mapped against the 211 World Economic Forum Competitiveness Index (see Figure 69), it is evident that some countries in the market driven Cluster perform Figure 69 Labour market effectiveness highly influences competitiveness Labour Market Effectiveness Index score R 2 =.52 Switzerland 1. Norway Australia Denmark Netherlands Greece South Korea Czech Republic Slovenia Portugal Ireland Poland UK Austria Finland Luxembourg France Japan USA Germany Sweden Slovakia Hungary Italy 4.5 Spain Chile 5. Belgium WEF Global Competitiveness Index score score 2. BCG analysis based on a number of key labour market metrics; for detailed methodology see appendix Source: Eurostat; OECD; CIETT data; WEF Global Competitiveness Report

93 Adapting to change I 93 well, but not all, while the social dialogue countries perform well as do some of the legislator driven markets notably France, Austria and Belgium. This underlines the importance of market relevant regulation that will deliver a transparent and well-functioning labour market and allow private employment services to play their role in creating jobs and increasingly labour market participation while supporting governments and companies through the economic cycle. THERE IS NO ONE SIZE FITS ALL MODEL The Boston Consulting Group/Ciett research does not reveal or defend one, preferred or recommended model. The clusters are closely related to culture, institutional organisation and the way in which the society is managed. The effectiveness of approaches will depend on the society to which they are applied. However the clusters show that there are elements and characteristics which can help to optimise effectiveness and efficiency of labour markets. Where feasible, within clusters, there is the opportunity for countries to learn from the best-practice examples of others and to pick and choose elements from other clusters if they could be made to fit in order to optimise the efficiency of their labour market. CHAPTER SUMMARY Regulation of private employment services should balance flexibility with security. Private employment services only contribute to better functioning labour markets when appropriately regulated. The report shows that labour market efficiency is related to country clusters based on political and social systems, the impact of regulatory regimes, socio-economic and historic social dynamics. Finally, there is strong evidence to show that labour market effectiveness greatly influences the competitiveness of a country.

94 94 I Adapting to change Conclusions and Recommendations Moving Forward

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